THERAGENICS CORP, 424B1, 1997-04-01

THERAGENICS CORP
424B1, 1997-04-01
PHARMACEUTICAL PREPARATIONS

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<PAGE> 1

Filed Pursuant to Rule 424(b)(1)
Registration No. 333-21317

PROSPECTUS
2,000,000 SHARES

THERAGENICS CORPORATION LOGO

COMMON STOCK
------------------

All of the shares of Common Stock offered hereby are being sold by
Theragenics Corporation ("Theragenics" or the "Company").

The Common Stock of the Company is listed on the Nasdaq National Market
tier of The Nasdaq Stock Market(SM) ("Nasdaq") under the symbol "THRX." On March
31, 1997, the last sale price of the Common Stock as reported by Nasdaq was
$16.25 per share.

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
==============================================================================================================
UNDERWRITING
PRICE TO DISCOUNT AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $15.00 $.94 $14.06
- --------------------------------------------------------------------------------------------------------------
Total(3) $30,000,000 $1,880,000 $28,120,000
==============================================================================================================
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $400,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 300,000 additional shares of Common Stock on the same terms as set
forth above to cover over-allotments, if any. If the Underwriters
exercise such option in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $34,500,000,
$2,162,000 and $32,338,000, respectively. See "Underwriting."

------------------

The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them, and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about April
4, 1997 at the offices of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.

------------------

SMITH BARNEY INC. DAIN BOSWORTH
Incorporated

March 31, 1997
<PAGE> 2

[GRAPHICS]

---------------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the detailed information and financial statements,
including the notes thereto, appearing elsewhere or incorporated by reference in
this Prospectus. See "Risk Factors" for a discussion of certain factors that
should be carefully considered by prospective investors.

THE COMPANY

Theragenics is a leader in the production and marketing of implantable
radiation devices used in the treatment of prostate cancer. The Company produces
and markets TheraSeed(R), an FDA-licensed device based on Palladium-103
("Pd-103"), a radioactive isotope. Management believes the Company is the only
producer of Pd-103 for use in medical devices. In the treatment of prostate
cancer, TheraSeeds(R) are implanted into the prostate in a one-time, minimally
invasive procedure. The radiation emitted by the seeds is contained within the
immediate prostate area, killing the tumor while sparing surrounding organs.
TheraSeed(R) has been shown in independent clinical studies to offer success
rates that are comparable to or better than other conventional therapies, while
being associated with a reduced incidence of side effects. In addition,
TheraSeed(R) offers significant quality of life and cost advantages. Since 1987,
TheraSeed(R) has been used by physicians in nearly 300 centers across the United
States in approximately 13,000 procedures for prostate cancer, including
approximately 4,000 procedures in 1996. Sales of TheraSeed(R) increased 65% in
1995 and 58% in 1996 due to reliable production from the Company's
cyclotron-based manufacturing process and increased demand for TheraSeed(R) as a
result of significantly increased marketing efforts and the release of favorable
clinical data. TheraSeed(R) has also been used on a limited basis to treat
cancers of the pancreas, lung, head, neck, oral cavity, brain and eye.

Prostate cancer is the most common form of cancer, and the second leading
cause of cancer deaths, in men. It is expected to account for approximately 43%
of all cancers to be diagnosed in men during 1997. Based on industry data, the
Company estimates that the cost of treating prostate cancer exceeded $3.0
billion in the United States in 1995. The American Cancer Society estimates new
cases of prostate cancer grew 30% in 1996 to 317,000 from 244,000 cases in 1995,
with deaths associated with the disease estimated to have grown to 41,400 in
1996 from 40,000 in 1995. Principal reasons for the significant increase in new
cases have been advances in diagnostic technology and increased media attention,
including publicity regarding several highly visible individuals who have made
public their battles with the disease. Estimates by the United States Bureau of
Census indicate that the number of men most prone to prostate cancer, those 40
to 80 years old, will grow to 55 million by 2006 from 45 million in 1996. The
Company estimates its market share in the treatment of localized, early-stage
prostate cancer to be approximately 2.5%.

TheraSeed(R) treatment is performed through a method called ultrasound
guided transperineal seeding ("seeding"). In addition to seeding, prostate
cancer can be treated with radical prostatectomy ("RP"), external beam radiation
therapy ("EBRT"), hormone therapy, chemotherapy and watchful waiting. Hormone
therapy and chemotherapy are generally not intended to be curative and are not
actively used to treat localized, early-stage prostate cancer.

Management believes TheraSeed(R) offers significant advantages over RP and
EBRT. Recent multi-year clinical studies indicate that seeding offers success
rates that are comparable to or better than those of RP or EBRT and reduced
complication rates. In addition, the TheraSeed(R) treatment is a one-time
outpatient procedure with a two to three day recovery period. By comparison, RP
is an inpatient procedure typically accompanied by a three to seven day hospital
stay and a four to six week recovery period, and EBRT involves six to eight
weeks of daily radiation treatments. Treatment with TheraSeed(R) costs $10,000
to $15,000 per procedure, which is substantially lower than the cost of RP and
comparable to the cost of EBRT. In addition, management believes TheraSeed(R)
offers significant competitive advantages over Iodine-125 ("I-125"), an
alternative radioisotope used in seeding, as a result of Pd-103's higher dose
rate and shorter half-life.

The Company's strategy is to enhance market penetration and maintain
technological leadership in the field of radiological treatment of diseases by:
(i) increasing physician awareness of seeding and TheraSeed(R); (ii) maintaining
a strong commitment to providing cancer information services to patients; (iii)
maintaining technological leadership; (iv) exploring and evaluating
opportunities for strategic alliances; (v) promoting seeding to health care
payors; and (vi) exploring new distribution channels and product applications.
See "Recent Developments -- Prospective Strategic Alliance" for a description of
the Company's prospective strategic alliance with Indigo Medical, Inc.
("Indigo"), a subsidiary of Johnson & Johnson.

Theragenics received an FDA license to market TheraSeed(R) in 1986 and
commenced product sales in 1987. The Company has been profitable in every
quarter since 1991. In 1992, management increased its control over the
manufacture of TheraSeed(R) by integrating into the Company the production of
Pd-103. This significantly increased capacity for the production of TheraSeed(R)
while maintaining quality and regulatory compliance.
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<PAGE> 4

RECENT DEVELOPMENTS

Prospective Strategic Alliance

On February 24, 1997, the Company entered into a letter of intent with
Indigo Medical, Inc., a subsidiary of Johnson & Johnson, stating the intent to
grant to Indigo the exclusive worldwide right to market and sell TheraSeed(R)
for the treatment of prostate cancer. The letter of intent is subject to the
completion of definitive documentation and approval by the respective Boards of
Directors of the Company and Indigo. Under the terms of the proposed alliance,
the Company will receive a fixed price per seed sold by Indigo in the United
States and will participate in any unit price increases above a fixed gross
sales price. Indigo would also assume responsibility for the education and
training of urologists, radiation oncologists and other personnel involved in
the use of TheraSeed(R). The Company will continue to be responsible for all
manufacturing and distribution of TheraSeed(R). The terms of international
collaboration would be negotiated in the future.

The letter of intent also contemplates that Indigo will have a first right
of negotiation with respect to additional uses of TheraSeed(R) and other
products that may be developed by the Company. In addition, the letter of intent
provides that upon the execution and delivery of a definitive marketing and
sales agreement between the Company and Indigo, Johnson & Johnson Development
Corporation will purchase $5.0 million of Common Stock from the Company at a
price based on the market price of the Common Stock.

Management believes the proposed alliance with Indigo would provide for
sales growth and international expansion while allowing the Company to focus its
resources on maintaining its leadership in the production of Pd-103 for prostate
cancer treatment and other potential applications. By leveraging the extensive
worldwide marketing capability of Indigo and Johnson & Johnson, the Company
would eliminate the need to develop an extensive, vertically integrated sales,
marketing and education and training network. No assurance can be given,
however, that the Company and Indigo will enter into a definitive agreement or
that it will have the anticipated effect on the Company.

Adoption of Stockholder Rights Plan

THE OFFERING

Common Stock being offered.................. 2,000,000 shares(1)

Common Stock outstanding after the
offering.................................... 13,843,503 shares(1)(2)

Use of proceeds............................. To finance the purchase of
additional cyclotrons and the
construction of manufacturing
and office facilities and for
general corporate purposes

Nasdaq National Market Symbol............... THRX

SUMMARY FINANCIAL DATA
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Product sales............................................... $ 4,723 $ 7,782 $ 12,257
Cost of product sales....................................... 1,791 2,645 3,736
Selling, general and administrative......................... 1,844 2,396 3,198
Research and development.................................... 15 18 7
Net earnings................................................ 730 1,772 3,385
Earnings per common share................................... $ 0.06 $ 0.15 $ 0.28
Weighted average shares..................................... 11,583 11,759 12,259
OTHER DATA:
Capital expenditures........................................ $ 3,377 $ 2,427 $ 8,556
Number of operational cyclotrons at year-end................ 1 2 3
Number of TheraSeeds(R) sold................................ 122,837 202,872 319,474
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments............................. $ 2,986 $30,706
Property, plant and equipment, net.......................... 17,586 17,586
Total assets................................................ 23,689 51,409
Long-term debt, including current installments.............. 3,458 3,458
Shareholders' equity........................................ 19,385 47,105
</TABLE>

- ---------------

(1) Does not include up to 300,000 shares of Common Stock that may be sold by
the Company pursuant to the Underwriters' over-allotment option. See
"Underwriting."
(2) Based upon the number of shares outstanding as of March 27, 1997. Excludes
797,275 shares of Common Stock issuable upon exercise of options granted
pursuant to the Company's existing stock option plans and 60,000 shares of
Common Stock issuable upon exercise of warrants. See "Capitalization" and
Note G of Notes to Financial Statements.
(3) Adjusted to give effect to the sale of the shares of Common Stock offered
hereby and the receipt of the net proceeds therefrom. See "Use of
Proceeds."
---------------------

Unless otherwise indicated, information in this Prospectus assumes no
exercise of the Underwriters' option to purchase from the Company up to 300,000
additional shares of Common Stock to cover over-allotments, if any. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in "Risk Factors," as well as those
discussed elsewhere in this Prospectus.
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<PAGE> 6

RISK FACTORS

In evaluating the Company and its business, prospective investors should
consider carefully the following factors and other information contained in this
Prospectus before purchasing the Common Stock offered hereby.

EARLY STAGE OF PRODUCT COMMERCIALIZATION

The Company's products are in an early stage of commercialization.
Substantially all of the Company's revenues to date have been generated by sales
of its principal product, TheraSeed(R), to physicians for the treatment of
prostate cancer. Although TheraSeed(R) has been commercially available since
1987, sales of TheraSeed(R) currently account for only an estimated 2.5% share
of the market for the treatment of early-stage, localized prostate cancer. The
Company's long-term success depends on its ability to manufacture, market and
distribute TheraSeed(R) to a larger portion of the medical community. The time
frame necessary to accomplish these objectives is long and uncertain. There can
be no assurance that the Company will be able to continue to manufacture
TheraSeed(R) at an acceptable cost and appropriate quality, that the Company
will be able to develop new products or attain regulatory approval for such
products or that the Company will be able to increase sales in its target
market. The likelihood of the Company's future success must be considered in
light of these and other difficulties, expenses and delays frequently
encountered in connection with the commercialization of medical device products.
See "Business -- Production" and "-- Marketing."

UNCERTAINTY OF MARKET ACCEPTANCE; RELIANCE ON A SINGLE PRODUCT

Ultrasound guided transperineal seeding, currently the most prevalent
seeding technique practiced by physicians, is a relatively new treatment method
for prostate cancer with a relatively early level of market penetration. There
can be no assurance that seeding will gain significant market acceptance among
physicians, patients and health care payors. The continued success of the
Company's products depends on maintaining and increasing favorable perceptions
by patients, doctors and medical researchers regarding the safety, efficacy and
cost-effectiveness of TheraSeed(R). Management believes that recommendations by
physicians and health care payors will be essential to increase market
acceptance of seeding, and there can be no assurance that any such
recommendations will be obtained. Physicians will not recommend seeding unless
they conclude, based on clinical data and other factors, that it is an
attractive alternative to other methods of prostate cancer treatment, including
RP and EBRT. In particular, RP has a long history as the treatment of choice for
early-stage, localized prostate cancer, and many physicians have been trained in
this procedure. Moreover, in comparison to seeding, RP has more extensive
long-term outcomes data due to its establishment in the medical community. The
current seeding procedure employs sophisticated ultrasound and computer
technology for the precise placement of seeds in the prostate. An older method
of seed placement used as a treatment for prostate cancer was first developed in
the early 1970s, but fell into disfavor because the surgical technique then
employed (the "free-hand" technique) led to suboptimal clinical results. Some
negative perceptions of seeding in general persist as a result of the failures
of the free-hand technique. In addition, negative results from other radiation
treatment methods, particularly EBRT, could create an unfavorable public
perception of radiation treatment for prostate cancer in general, which would
adversely affect public acceptance of seeding. Reimbursement levels for seeding
relative to other treatment options will also affect physician acceptance. See
"-- Effect of Reimbursement Policies."

Although the Company's strategy includes exploring opportunities for
marketing TheraSeed(R) in international markets, physicians in many countries,
including most European countries, do not aggressively treat prostate cancer. No
assurance can be given that TheraSeed(R) will be an accepted method of treatment
outside the United States even if physicians in international markets
aggressively treat prostate cancer.

The Company has concentrated its efforts primarily on the development of
TheraSeed(R) and is dependent on the continuing commercialization of this
product to generate revenues. Because substantially all of the Company's
revenues are derived from the sale of TheraSeed(R), slow market acceptance or a
reduction in demand for TheraSeed(R) could have a material adverse effect on the
Company's business, financial condition and results of operations. Although
management plans to use the Company's core technology to develop

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<PAGE> 7

additional products, there can be no assurance that such products will be
successfully developed, achieve therapeutic efficacy, be approved by regulatory
authorities or be successfully marketed. See "Business -- Strategy,"
"-- Marketing," "-- Competition" and "-- Government Regulation."

PRODUCTION RISKS; MANUFACTURING EXPANSION

The Company's manufacturing process requires, among other things, the use
of cyclotrons, which are used to manufacture Pd-103 for TheraSeed(R). Cyclotron
capacity and performance directly affect the Company's ability to achieve and
increase sales levels. Due to the intricate nature of cyclotrons and the
Company's exacting specifications for their performance, planned downtime for
maintenance and repair is crucial and unexpected downtime may occur. Unexpected
mechanical breakdowns or other production delays could materially adversely
affect the Company's production capacity and its business, financial condition
and results of operations.

The Company currently operates three cyclotrons, with a fourth cyclotron
expected to be operational during the first half of 1997. In order to achieve
planned revenue growth, the Company must significantly expand its manufacturing
capacity. The Company has ordered an additional four cyclotrons, which are
scheduled to become operational during 1998. The Company experienced a lengthy
period of unexpected downtime on its first cyclotron in late 1993 and has
experienced difficulties with the installation of its third cyclotron. The
Company may encounter further unexpected delays or costs in its expansion of
production capacity. Manufacturing or quality control problems may arise as the
Company increases production or as additional manufacturing capacity is required
in the future. These factors, coupled with the long lead time (in excess of 18
months) associated with the purchase of cyclotrons and the construction of
specially designed facilities to house the equipment, may have an adverse impact
on the Company's business, financial condition and results of operations. See
"Business -- Production."

DEPENDENCE ON POTENTIAL MARKETING ALLIANCE

On February 24, 1997, the Company entered into a letter of intent with
Indigo stating the intent to grant to Indigo the exclusive worldwide right to
market and sell TheraSeed(R) for the treatment of prostate cancer. The
consummation of this marketing alliance is subject, among other things, to the
negotiation and execution of a definitive agreement specifying the terms of the
arrangement. No assurance can be given that the Company will enter into such an
agreement on the terms specified in the letter of intent or otherwise. Failure
to establish such an arrangement could have a material adverse effect on the
market price for the Common Stock.

Under the terms of the proposed alliance, Indigo will assume exclusive
responsibility for the sales and marketing of TheraSeed(R) for the treatment of
prostate cancer and the Company will receive a fixed price per seed sold by
Indigo in the United States and will participate in any unit price increases
above a fixed gross price. As a result, the Company's results of operations
would be dependent upon Indigo's marketing efforts. Although management believes
Indigo will have an economic motivation to market TheraSeed(R) vigorously, the
Company will be unable to control the amount and timing of resources to be
devoted to such efforts. Failure to successfully market TheraSeed(R) under the
terms of the proposed alliance or any other arrangement could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Recent Developments -- Prospective Strategic Alliance" and
"Business -- Strategy" and "-- Marketing."

MANAGEMENT OF GROWTH

The Company has experienced a period of rapid growth that has placed, and
will continue to place, significant demands on its management, manufacturing and
other resources. The Company's future performance will depend in part on its
ability to manage growth and adjust its operations accordingly. In addition, the
Company's ability to manage its growth effectively will require continued
enhancement of its manufacturing, research and development and other operations
and the attraction, training and retention of key employees. If management were
to become unable to manage growth effectively, the Company's business, financial

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<PAGE> 8

condition and results of operations could be materially adversely affected. See
"-- Retention of and Dependence on Key Personnel."

RELIANCE ON INDEPENDENT EQUIPMENT MANUFACTURERS

Management believes that the Company's cyclotron-based manufacturing
process provides the most cost-effective and reliable means of manufacturing
Pd-103. Management is aware of only a limited number of manufacturers that can
produce cyclotrons conforming to the size and quality specifications required by
the Company. The Company acquired each of its cyclotrons from a single
independent contractor and has contracted with this manufacturer to provide and
install the four additional cyclotrons currently on order. As with any
independent contractor, such contractor is not employed or otherwise controlled
by the Company and is generally free to conduct its business at its own
discretion. Although this contractor has entered into contracts with the Company
to manufacture four additional cyclotrons, such contracts can be terminated at
any time under certain circumstances by either the Company or the contractor and
can be breached at any time. Furthermore, work stoppages, slowing of production
or other delays by such independent contractor could have a material adverse
effect on the Company's operations. The Company has not made arrangements for
the manufacture of cyclotrons from other suppliers, and no assurance can be
given that acceptable alternative arrangements could be made on a timely basis
or at all. Additionally, the long lead time associated with the purchase of a
cyclotron would add significantly to the delay that would result from the need
to change cyclotron manufacturers unexpectedly. Any delay in meeting the
Company's production schedule for TheraSeed(R) could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, because the Company's contracts with its independent cyclotron
manufacturer are denominated in Belgian francs, the Company is exposed to
currency fluctuation risks. See "Business -- Production."

TECHNOLOGICAL DEVELOPMENTS AND COMPETITION

The Company competes in a market characterized by technological innovation,
extensive research efforts and significant competition. New developments in
technology may have a material adverse effect on the development or sale of the
Company's products and may render such products noncompetitive or obsolete.
Other companies, many of which have substantially greater capital resources,
marketing experience, research and development staffs and facilities than the
Company, are currently engaged in the development of products and innovative
methods for treating cancer that are similar to, or compete with, the Company's
products and technologies. In addition, a start-up company based in Belgium
founded by former employees of the Company has recently indicated an intent to
produce Pd-103 in the future and market a device similar to TheraSeed(R) for use
in the treatment of prostate cancer and other applications. Significant
developments by any of these companies or advances by medical researchers at
universities, government research facilities or private research laboratories
could eliminate the market for the Company's principal product or otherwise
render the Company's principal product obsolete. Furthermore, if demand for
TheraSeed(R) increases as a result of wider acceptance of seeding in the
treatment of prostate cancer, companies with substantially greater financial
resources than the Company, as well as extensive experience in research and
development, the regulatory approval process and manufacturing and marketing,
may elect to develop seeding treatments and products that are similar to those
of the Company.

TheraSeed(R) competes with prostate cancer treatment methods that are well
established in the medical community, including RP and EBRT. RP has been
performed for 30 years and has long been considered to be the medical standard
for the treatment of early stage, localized prostate cancer, the stage of cancer
most appropriate for seeding treatment. Although favorable clinical results for
seeding have been released, more extensive outcomes data is available for RP.
Urologists continue to perform RP with considerable frequency, with the annual
number of RPs increasing significantly over the past five years.

GOVERNMENT REGULATION

The manufacture and sale of the Company's products are subject to stringent
government regulation in the United States and other countries. Currently,
TheraSeed(R) has 510(k) clearance from the FDA for

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<PAGE> 9

commercial distribution in the United States. FDA and other governmental
approvals and clearances are subject to continual review, and later discovery of
previously unknown problems may result in restrictions on a product's marketing
or withdrawal of the product from the market. The commercial distribution in the
United States of any new products developed by the Company will be dependent on
obtaining the prior approval or clearance of the FDA, which can take many years
and entail significant costs. No assurances can be made that any such approval
or clearance will be obtained on a timely basis or at all. In countries where
the Company's products are not currently approved, the use or sale of the
Company's products will require approval by government agencies comparable to
the FDA. The process of obtaining such approvals is lengthy, expensive and
uncertain. There can be no assurance that the necessary approvals for the
marketing of the Company's products in other markets will be obtained on a
timely basis or at all. The Company is also required to adhere to applicable FDA
regulations for Good Manufacturing Practices ("GMP"), including extensive record
keeping and reporting and periodic inspections of its manufacturing facilities.
Similar requirements are imposed by governmental agencies in other countries.

The Company's manufacturing operations involve the manufacturing and
possession of radioactive materials, which are subject to stringent regulation.
The users of the Company's TheraSeed(R) product are also required to possess
licenses issued by the states in which they reside or the U.S. Nuclear
Regulatory Commission (the "NRC"). Use licenses are also required by some of the
foreign jurisdictions in which the Company may seek to market its products.
There can be no assurance that current licenses held by the Company for its
manufacturing operations will remain in force or that additional licenses
required for the Company's operations will be issued. There also can be no
assurance that the Company's customers will receive or retain the radioactive
materials licenses required to possess and use TheraSeed(R) or that delays in
the granting of such licenses will not hinder the Company's ability to market
its products. Furthermore, regulation of the Company's radioactive materials
manufacturing processes involves the imposition of financial requirements
related to public safety and decommissioning, and there are high costs and
regulatory uncertainties associated with the disposal of radioactive waste
generated by the Company's manufacturing operations. There can be no assurance
that the imposition of such requirements and the costs and regulatory
restrictions associated with disposal of waste will not, in the future,
adversely affect the Company's business, financial condition and results of
operations.

Failure to obtain and maintain regulatory approvals, licenses and permits
could significantly delay the Company's marketing efforts. Furthermore, changes
in or interpretations of existing regulations or the adoption of new restrictive
regulations could adversely affect either the obtaining or timing of future
regulatory approvals. Failure to comply with applicable regulatory requirements
could result in, among other things, significant fines, suspension of approvals,
seizures or recalls of products, operating restrictions or criminal prosecution
and materially adversely affect the Company's business, financial condition and
results of operations.

INTELLECTUAL PROPERTY RIGHTS; DEPENDENCE ON TRADE SECRETS

The Company's success will depend, in part, on its ability to obtain,
assert and defend patent rights, protect trade secrets and operate without
infringing the proprietary rights of others. The Company holds rights to issued
United States and foreign patents. There can be no assurance that rights under
patents held by or licensed to the Company will provide it with competitive
advantages or that others will not independently develop similar products or
design around or infringe the patents or other proprietary rights owned by or
licensed to the Company. For example, certain former employees of the Company
have recently formed a company that intends to produce Pd-103 and market a
device similar to TheraSeed(R). In addition, there can be no assurance that any
patent obtained or licensed by the Company will be held to be valid and
enforceable if challenged by another party.

There can be no assurance that patents have not been issued or will not be
issued in the future that conflict with the Company's patent rights or prevent
the Company from marketing its products. Such conflicts could result in a
rejection of the Company's or its licensors' patent applications or the
invalidation of patents, which could have a material adverse effect on the
Company's business, financial condition and results of operations. In the event
of such conflicts, or in the event the Company believes that competitive
products

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<PAGE> 10

infringe patents to which the Company holds rights, the Company may pursue
patent infringement litigation or interference proceedings against, or may be
required to defend against litigation or proceedings involving, holders of such
conflicting patents or competing products. There can be no assurance that the
Company will be successful in any such litigation or proceeding, and the results
and cost of such litigation or proceeding may materially adversely affect the
Company's business, financial condition and results of operations. In addition,
if patents that contain dominating or conflicting claims have been or are
subsequently issued to others and such claims are ultimately determined to be
valid, the Company may be required to obtain licenses under patents or other
proprietary rights of others. No assurance can be given that any licenses
required under any such patents or proprietary rights would be made available on
terms acceptable to the Company, if at all. If the Company does not obtain such
licenses, it could encounter delays or could find that the development,
manufacture or sale of products requiring such licenses is foreclosed.

The Company relies to a significant degree on trade secrets, proprietary
know-how and technological advances that are either not patentable or that the
Company chooses not to patent. The Company seeks to protect non-patented
proprietary information, in part, by confidentiality agreements with suppliers,
employees and consultants. There can be no assurance that these agreements will
not be breached, that the Company would have adequate remedies for any breach,
or that the Company's trade secrets and proprietary know-how will not otherwise
become known or be independently discovered by others. The disclosure to third
parties of proprietary non-patented information could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Patents and Licenses; Trade Secrets."

EFFECT OF REIMBURSEMENT POLICIES

A substantial percentage of the patients treated for prostate cancer in the
United States are covered by Medicare, and consequently, the costs for prostate
cancer treatment are subject to Medicare's prescribed rates of reimbursement.
Medicare reimbursement amounts for seeding are currently significantly less than
for RP. Although seeding requires less physician time than RP, reimbursement
amounts, when combined with physician familiarity with RP, provide disincentives
for urologists to perform seeding. There can be no assurance that (i) current or
future limitations or requirements for reimbursement by Medicare or other third
party payors for prostate cancer treatment will not materially adversely affect
the market for TheraSeed(R), (ii) health administration authorities outside of
the United States will provide reimbursement at acceptable levels or at all or
(iii) any such reimbursement will continue at rates that enable the Company to
maintain prices at levels sufficient to realize an appropriate return.

RISK OF PRODUCT LIABILITY CLAIMS

The Company's business is subject to product liability risks inherent in
the testing, manufacturing and marketing of medical devices. To date, no product
liability claims have been asserted against the Company. The Company maintains a
product liability and general liability insurance policy with coverage of an
annual aggregate maximum of $5 million. The Company's product liability and
general liability policy is provided on a claims made basis and is subject to
annual renewal. There can be no assurance that liability claims will not exceed
the scope of coverage or limits of such policies or that such insurance will
continue to be available on commercially reasonable terms or at all. If the
Company does not or cannot maintain sufficient liability insurance, its ability
to market its products may be significantly impaired. In addition, product
liability claims, as well as negative publicity arising out of such claims,
could have a material adverse effect on the business, financial condition and
results of operations of the Company.

NEED FOR FUTURE CAPITAL

The Company's capital requirements have been and are expected to continue
to be significant. The Company plans to use a substantial portion of the net
proceeds of this offering to fund expansion of its production capacity. The
Company also has an available credit facility to help finance the Company's
growth and expansion. Although management believes the Company's existing
capital resources, together with the net proceeds from this offering, available
credit and future operating cash flows, will be sufficient to fund the Company's
planned expansion over the next 24 months, there can be no assurance that such
sources will be

10
<PAGE> 11

sufficient to fund its planned expansion. The Company's capital requirements
will depend on numerous factors, including the time and cost involved in
expanding production capacity, the cost involved in protecting the proprietary
rights of the Company and the time and expense involved in obtaining required
regulatory approval to market TheraSeed(R) in new markets or similar approval
for new products of the Company.

RETENTION OF AND DEPENDENCE ON KEY PERSONNEL

The Company's ability to develop marketable products, to market its
products and services and to establish and maintain its competitive position
will depend, to a significant extent, on its ability to attract and retain
highly skilled management and scientific personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
able to attract and retain such personnel. The Company carries a key person life
insurance policy on its Chief Executive Officer in the amount of $1.0 million.
The Company has entered into employment agreements with the Company's President
and Chief Executive Officer and its Chief Financial Officer.

ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER, BYLAW AND DELAWARE LAW PROVISIONS;
STOCKHOLDER RIGHTS PLAN

Certain provisions of the Company's Certificate of Incorporation, Bylaws
and Delaware law could discourage potential acquisition proposals, delay or
prevent a change in control of the Company and limit the price that investors
might be willing to pay in the future for shares of the Common Stock. These
provisions include (i) a board divided into three classes, each of which serves
for a staggered three-year term, (ii) a requirement that special meetings of
shareholders be called only by the Board of Directors or by any officer
instructed by the directors to call a special meeting and (iii) advance notice
requirements for shareholder proposals and nominations to the Board of
Directors. The Company is also subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any of a broad range of business combinations with
any "interested shareholder" for a period of three years following the date that
such shareholder became an interested shareholder.

On February 14, 1997, the Company's Board of Directors adopted a
Stockholder Rights Plan. The Rights Plan contains provisions to protect the
Company's stockholders in the event of an unsolicited offer to acquire the
Company or certain other occurrences. Pursuant to the Rights Plan, the Board of
Directors declared and paid a dividend of one share purchase right (a "Right")
for each outstanding share of Common Stock held of record as of February 28,
1997. The Rights initially will be represented by, and traded together with, the
Common Stock. The Rights are not currently exercisable and do not become
exercisable unless certain events occur, including the acquisition of, or
commencement of a tender offer for, 15% or more of the outstanding Common Stock.
Each Right represents the right to purchase from the Company one share of Common
Stock at a purchase price of $120.00, subject to adjustment. In the event
certain triggering events occur, including the acquisition of 20% or more of the
outstanding Common Stock, each Right that is not held by a holder of 20% or more
of the outstanding Common Stock will entitle its holder to purchase additional
shares having a market value of twice the purchase price. As a result, the
Rights Plan could add substantially to the cost of acquiring the Company, and
consequently could delay or prevent a change in control of the Company. These
effects could adversely affect the market price of the Common Stock. See "Recent
Developments -- Adoption of Stockholder Rights Plan."

VOLATILITY OF MARKET PRICE OF COMMON STOCK

From time to time after this offering, there may be significant volatility
in the market price of the Common Stock. Quarterly operating results of the
Company or other companies in the same line of business, publication of the
results of studies involving seeding or TheraSeed(R), developments involving the
Company's proprietary rights, changes in reimbursement levels, changes in
general conditions in the medical community or other developments affecting the
Company or its competitors could cause the market price of the Common Stock to
fluctuate substantially. In addition, the stock markets have from time to time
experienced significant price and volume fluctuations that have often been
unrelated to the operating performance of particular companies.

11
<PAGE> 12

THE COMPANY

The Company was incorporated under the laws of the State of Delaware in
November 1981. The Company's executive offices are located at 5325 Oakbrook
Parkway, Norcross, Georgia 30093, and its telephone number is (770) 381-8338.

RECENT DEVELOPMENTS

Prospective Strategic Alliance

Adoption of Stockholder Rights Plan

On February 14, 1997, the Company's Board of Directors adopted a
Stockholder Rights Plan (the "Rights Plan"). The Rights Plan contains provisions
to protect the Company's stockholders in the event of an unsolicited offer to
acquire the Company, including offers that do not treat all stockholders
equally, the acquisition in the open market of shares constituting control
without offering fair value to all stockholders and other coercive, unfair or
inadequate takeover bids and practices that could impair the ability of the
Board of Directors to represent stockholders' interests fully. Pursuant to the
Rights Plan, the Board of Directors declared and paid a dividend of one share
purchase right (a "Right") for each outstanding share of Common Stock held of
record as of February 28, 1997. The Rights, which will expire in February 2007,
initially will be represented by, and traded together with, the Common Stock.
The Rights are not currently exercisable and do not become exercisable unless
certain events occur, including the acquisition of, or commencement of a tender
offer for, 15% or more of the outstanding Common Stock. Each Right represents
the right to purchase from the Company one share of Common Stock at a purchase
price of $120.00, subject to adjustment. In the event certain triggering events
occur, including the acquisition of 20% or more of the outstanding Common Stock,
each Right that is not held by the 20% or more stockholder will entitle its
holder to purchase additional shares of Common Stock having a market value of
twice the purchase price. As a result, the Rights Plan could add substantially
to the cost of acquiring the Company, and consequently could delay or prevent a
change in control of the Company. These effects could adversely affect the
market price of the Common Stock. Prior to the time the Rights become
exercisable, the Board of Directors may redeem the Rights at a redemption price

12
<PAGE> 13

of $.01 per Right. The description and terms of the Rights are set forth in a
Rights Agreement dated as of February 17, 1997 by and between the Company and
SunTrust Bank, Atlanta, as Rights Agent.

USE OF PROCEEDS

The net proceeds from the sale of the Common Stock being offered hereby are
estimated to be $27.7 million ($31.9 million if the Underwriters' over-allotment
option is exercised in full), after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company.

The Company intends to utilize approximately $20.0 million of the net
proceeds for the purchase of four additional cyclotrons during the next two
fiscal years and to construct facilities to house the cyclotrons, assembly
facilities and additional executive and administrative office space. The
remaining proceeds will be used for working capital and for general corporate
purposes, including but not limited to expenses or capital expenditures incurred
in the purchase of additional cyclotrons, marketing, research and development
and automation. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." Pending such
uses, the Company intends to invest the net proceeds in short-term, investment
grade instruments, certificates of deposit or direct or guaranteed obligations
of the United States or its agencies.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1996 and as adjusted to reflect the sale by the Company of the
shares of Common Stock offered hereby and the receipt of the net proceeds
therefrom. See "Use of Proceeds."

<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current installments.............. $ 3,458 $ 3,458
------- -------
Shareholders' equity:
Common Stock, $.01 par value, 50,000,000 shares
authorized; 11,814,278 shares issued and outstanding,
actual; 13,814,278 issued and outstanding, as
adjusted(1)............................................ 118 138
Additional paid-in capital................................ 17,617 45,317
Retained earnings......................................... 1,650 1,650
------- -------
Total shareholders' equity........................ 19,385 47,105
------- -------
Total capitalization.............................. $22,843 $50,563
======= =======
</TABLE>

- ---------------

(1) Excludes 826,500 shares of Common Stock issuable upon exercise of options
granted pursuant to the Company's existing stock option plans at a weighted
average exercise price of $7.22 per share and 60,000 shares of Common Stock
issuable upon exercise of warrants at an exercise price of $7.50 per share.
See Note G of Notes to Financial Statements.

13
<PAGE> 14

DIVIDEND POLICY

The Company has never declared or paid a cash dividend on its Common Stock.
It is the present policy of the Board of Directors to retain all earnings to
support operations and to finance expansion. Consequently, the Board of
Directors does not anticipate declaring or paying cash dividends on the Common
Stock in the foreseeable future. The Company's current credit facility limits
the amount of dividends payable on the Common Stock to a maximum of 25% of the
Company's annual net income after tax. Decisions on the payment and amount of
future dividends on the Common Stock will depend on the Company's results of
operations, capital requirements and financial condition and other relevant
factors as determined by the Board of Directors.

PRICE RANGE OF COMMON STOCK

The Common Stock is listed on Nasdaq under the symbol "THRX." The following
table sets forth, for the calendar quarters indicated, the high and low sale
prices of the Common Stock as reported on Nasdaq.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995
First Quarter............................................. $ 3.75 $ 2.25
Second Quarter............................................ 6.50 3.13
Third Quarter............................................. 6.38 4.88
Fourth Quarter............................................ 12.50 4.88

1996
First Quarter............................................. 12.25 7.00
Second Quarter............................................ 18.63 8.63
Third Quarter............................................. 19.25 11.75
Fourth Quarter............................................ 25.63 16.00

1997
First Quarter............................................. 27.63 15.75
</TABLE>

On March 31, 1997, the last reported sale price of the Common Stock on
Nasdaq was $16.25 per share. As of March 31, 1997, there were approximately 730
holders of record of the Common Stock.

14
<PAGE> 15

SELECTED FINANCIAL DATA

The selected financial data set forth below as of December 31, 1995 and
1996 and for each of the years in the three-year period ended December 31, 1996
have been derived from the financial statements of the Company included
elsewhere herein, which have been audited by Grant Thornton LLP, independent
certified public accountants. The selected financial data as of December 31,
1992, 1993 and 1994 and for each of the years in the two-year period ended
December 31, 1993 have been derived from the financial statements of the
Company, which have been audited by Grant Thornton LLP but are not included
herein. The selected financial data set forth below should be read in
conjunction with the financial statements of the Company and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Product sales............................ $ 4,379 $ 4,091 $ 4,723 $ 7,782 $12,257
Licensing fees........................... -- -- -- 85 100
------- ------- ------- ------- -------
4,379 4,091 4,723 7,867 12,357
Cost of product sales.................... 1,227 1,678 1,791 2,645 3,736
Selling, general and administrative...... 1,639 1,607 1,844 2,396 3,198
Research and development................. 63 36 15 18 7
------- ------- ------- ------- -------
2,929 3,321 3,650 5,059 6,941
Other income (expense)................... 68 (86) 110 64 36
------- ------- ------- ------- -------
Net earnings before income taxes,
extraordinary credit and cumulative
effect of change in accounting
principle.............................. 1,518 684 1,183 2,872 5,452
Income tax expense....................... 582 254 453 1,100 2,067
------- ------- ------- ------- -------
Net earnings before extraordinary credit
and change in accounting method........ 936 430 730 1,772 3,385
Extraordinary credit..................... 556 -- -- -- --
Change in accounting method.............. -- 2,860 -- -- --
------- ------- ------- ------- -------
Net earnings............................. $ 1,492 $ 3,290 $ 730 $ 1,772 $ 3,385
======= ======= ======= ======= =======
Earnings per common share before
extraordinary credit and change in
accounting method...................... $ 0.08 $ 0.04 $ 0.06 $ 0.15 $ 0.28
Earnings per common share................ $ 0.13 $ 0.28 $ 0.06 $ 0.15 $ 0.28
Weighted average shares.................. 11,431 11,709 11,583 11,759 12,259
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments.......... $ 2,928 $ 3,083 $ 2,317 $ 3,266 $ 2,986
Property, plant and equipment, net....... 3,404 5,647 8,458 10,073 17,586
Total assets............................. 7,851 12,619 14,169 16,878 23,689
Long-term debt, including current
installments........................... -- 1,330 1,989 1,519 3,458
Shareholders' equity..................... 7,445 11,034 11,810 14,769 19,385
</TABLE>

15
<PAGE> 16

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Theragenics was founded in 1981 and is engaged in the manufacture and sale
of TheraSeed(R), a rice-sized device used for the treatment of localized
prostate cancer in a one-time, minimally invasive procedure. In 1986, the
Company received FDA clearance for its principal product, TheraSeed(R), for use
in any solid localized tumor. Sales increased 65% in 1995 and 58% in 1996 due to
reliable production from the Company's cyclotrons and increased demand for
TheraSeed(R) as a result of significantly increased marketing efforts and the
release of favorable clinical data relating to the use of TheraSeed(R).
TheraSeed(R) has been used in an estimated 13,000 procedures for prostate cancer
since 1987, including approximately 4,000 procedures in 1996.

Production of Pd-103, the radioisotope supplying the therapeutic radiation
of TheraSeed(R), has always been a controlling factor in the Company's efforts
to generate sales. Until 1993, the Company used a manufacturing process that
required it to contract with third parties for enrichment services that were
necessary to produce a useable feed material for production of Pd-103 in a
nuclear reactor. Additionally, the Company was dependent on a university and a
United States government reactor for the irradiation of this feed material to
yield Pd-103. These factors combined to limit the availability of Pd-103 on a
timely and consistent basis.

To increase its control over the timely and consistent availability,
quality and cost of Pd-103, the Company converted to an alternative means of
producing Pd-103 using a cyclotron. In 1992, the Company contracted for the
purchase of a cyclotron for in-house production of Pd-103. After the cyclotron
was delivered and reliable production of Pd-103 was demonstrated, the Company
discontinued its reliance on outside vendors for enrichment and irradiation
services.

In view of the scale of the investment necessary to add cyclotrons and the
Company's limited access to debt and equity capital, the Company undertook a
slow and measured roll-out of its TheraSeed(R) product. Management focused
primarily on the careful development of relationships with the physician
community and on ensuring that the Company's production capabilities could meet
demand for its product. The Company added additional cyclotrons in 1995 and
1996, and a fourth cyclotron is scheduled to become operational in the first
half of 1997. Because a cyclotron does not become available for production until
approximately 18 months after it is ordered, the accuracy of the Company's
long-term plans can significantly affect its results of operations. The delivery
of cyclotrons prior to a commensurate increase in demand could adversely impact
margins, while inadequate cyclotron capacity could limit the Company's ability
to meet demand and achieve maximum sales growth.

The Company has recently commenced a $20.0 million capital expansion
project that includes the purchase of four additional cyclotrons and the
construction of new production and administrative facilities. Although no
assurances can be given, management expects that one new cyclotron will become
operational during each quarter of fiscal 1998. Management intends to apply a
substantial portion of the net proceeds of this offering toward the purchase of
the cyclotrons to be installed in fiscal 1998 and use the remainder for working
capital and other corporate purposes as appropriate. See "Use of Proceeds" and
"-- Liquidity and Capital Resources."

On February 24, 1997, the Company entered into a letter of intent with
Indigo Medical, Inc., a subsidiary of Johnson & Johnson, stating the intent to
grant to Indigo the exclusive worldwide right to market and sell TheraSeed(R)
for the treatment of prostate cancer. Under the terms of the proposed alliance,
the Company will receive a fixed price per seed sold by Indigo in the United
States and will participate in any unit price increases above a fixed gross
sales price. Indigo would also assume responsibility for the education and
training of urologists, radiation oncologists and other personnel involved in
the use of TheraSeed(R). The Company will continue to be responsible for all
manufacturing and distribution for TheraSeed(R). The terms of international
collaboration would be negotiated in the future.

Should a definitive agreement be reached, management expects that the
proposed alliance would result in higher sales volume that would offset the
reduced price received by the Company for its product and would

16
<PAGE> 17

provide avenues for international expansion. Based on the Company's ability to
utilize Indigo's sales, marketing and education and training network, management
also anticipates that an alliance with Indigo would significantly reduce the
increases in selling, general and administrative expense that would be necessary
to generate and respond to any future sales increases. In addition, management
expects that increased volume would require the Company to purchase additional
cyclotrons and plans to order additional cyclotrons at a rate commensurate with
demand in the event a definitive agreement with Indigo is reached. No assurance
can be given, however, that the Company and Indigo will successfully negotiate
or execute a definitive agreement or that it will have the anticipated effect on
the Company's results of operations.

RESULTS OF OPERATIONS

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Product sales were $12.3 million in 1996 compared to $7.8 million in 1995,
an increase of $4.5 million, or 57.7%. This increase was due to increased
shipments of TheraSeed(R) as a result of reliable production from the Company's
cyclotron-based manufacturing process and increased demand for TheraSeed(R) as a
result of significantly increased marketing efforts and the release of favorable
clinical data. During the periods presented, the Company engaged in significant
marketing efforts to educate both physicians and patients as to the availability
of this treatment option. Sales also reflect that the Company had two cyclotrons
available to meet sales demand throughout 1996 as compared to only one cyclotron
until April 1995.

Licensing fees represent royalty payments with respect to the Company's
licensed TheraSphere(R) technology. Management does not expect licensing fees to
become material in the foreseeable future. See Note F of Notes to Financial
Statements.

Cost of product sales was $3.7 million in 1996 compared to $2.6 million in
1995, an increase of $1.1 million, or 42.3%. This increase was due primarily to
incremental staffing and cyclotron related costs. Staffing increases were
necessary to respond to and anticipate sales growth. Cyclotron operating costs
and depreciation increased as the Company's second cyclotron ran for the entire
year and the third cyclotron was placed in service. The third cyclotron came
on-line behind schedule in the fourth quarter of 1996 and is experiencing
start-up difficulties. As cyclotrons come on-line, margins decline because each
machine represents excess capacity for a period while carrying its full
component of fixed costs, including depreciation. As a percentage of product
sales, cost of product sales decreased from 34.0% in 1995 to 30.5% in 1996. This
decrease resulted from economies of scale, offset in part by margin pressures
related to bringing the third cyclotron into production.

Selling, general and administrative expense was $3.2 million in 1996
compared to $2.4 million in 1995, an increase of $803,000, or 33.5%. This
increase reflects higher expenditures in a number of areas to support increased
sales. Marketing expenditures increased, as did staffing costs in response to
increasing workloads and responsibilities brought on by growth. Some salaries
were increased to maintain competitiveness in the marketplace and thereby retain
and attract key employees. Additionally, as head count grew, space became
limited in the Company's two facilities. The Company rented and outfitted
off-site administrative space at additional expense. Also, an increase in
overall asset size resulted in higher insurance and property tax costs. Other
support expenses grew in direct response to sales and asset size. Despite these
increases, selling, general and administrative expense as a percentage of net
sales decreased from 30.8% in 1995 to 26.1% in 1996 due to economies of scale.

During the periods presented, the Company had no ongoing pure research
function. Development of processes incorporated in the Company's production
operations is incorporated in the manufacturing area and therefore is included
in the cost of goods sold category. Management may choose to develop a research
and development program if and when appropriate opportunities are identified and
resources are in place.

Other income (expense) during the periods presented consist principally of
interest income, interest expense and write off of unamortized loan costs as a
result of loan refinancing.

The Company's effective income tax rate in both 1996 and 1995 was
approximately 38%.

17
<PAGE> 18

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Product sales were $7.8 million in 1995 compared to $4.7 million in 1994,
an increase of $3.1 million, or 64.8%. This increase was due to reliable
production from the Company's cyclotron-based manufacturing process and
increased demand for TheraSeed(R) as a result of significantly increased
marketing efforts and the release of favorable clinical data. During 1994, sales
efforts remained conservative while the Company addressed the lingering impact
of the 1993 change-over from reactor-produced to cyclotron-produced Pd-103 and a
lengthy period of unexpected downtime on the Company's first cyclotron during
the third quarter of 1993. In 1993 and the first half of 1994, management
delayed increasing marketing efforts until reliable cyclotron production of
Pd-103 was demonstrated. Once demonstrated, the Company instituted a more
aggressive marketing program in mid-1994. Product sales for 1995 reflected the
favorable impact of this increased marketing effort.

Cost of product sales was $2.6 million in 1995 compared to $1.8 million in
1994, an increase of $855,000, or 47.8%. This increase resulted from the
increase in TheraSeed(R) sales. As a percentage of product sales, cost of
product sales decreased from 37.9% in 1994 to 34.0% in 1995, primarily as a
result of increased utilization of production capacity and economies of scale,
partially offset by increased depreciation.

Selling, general and administrative expense was $2.4 million in 1995
compared to $1.8 million in 1994, an increase of $552,000, or 29.9%. This
increase was due primarily to increased advertising and public relations expense
to support activities associated with increased sales. Headcount expenses also
increased in response to the additional workload created by the higher sales. As
a percentage of net sales, selling, general and administrative expense decreased
from 39.0% in 1994 to 30.8% in 1995 due to economies of scale.

Income Taxes. The Company's effective income tax rate in both 1995 and
1994 was approximately 38%.

LIQUIDITY AND CAPITAL RESOURCES

During 1994, 1995 and 1996, the Company's principal cash needs related to
capital spending to increase manufacturing capacity. To manufacture
TheraSeed(R), the Company purchases, installs and operates cyclotrons, which
involves significant capital investment. The Company has funded its operations
over this period principally from cash flows from operations and bank
borrowings.

The Company had cash and short-term investments of $2.3 million, $3.3
million and $3.0 million at December 31, 1994, 1995 and 1996, respectively.
Working capital was $1.3 million at December 31, 1996, including $3.5 million
representing borrowings against the Company's credit facility. This compares to
$3.7 million at year end 1995, which included $511,000 representing the current
portion of long-term obligations. The Company's credit facility allows for the
conversion of, at the Company's option, the entire outstanding balance borrowed
against the credit facility to be converted to a five-year term loan on or
before June 30, 1997, provided the Company equals or exceeds certain financial
ratios. See Note E of Notes to Financial Statements. The Company currently
satisfies these conditions. If the Company were to meet these ratios on June 30,
1997, and choose to convert the December 31, 1996 balance of $3.5 million to a
five-year term loan, the pro forma restated working capital at December 31, 1996
would equal approximately $4.4 million.

Cash provided by operating activities was $1.6 million, $3.4 million and
$5.7 million during 1994, 1995 and 1996, respectively. These amounts represent
primarily net income and adjustments for deferred income tax expense and
depreciation and amortization expense, offset in part by adjustments for
increases in accounts receivable related to sales growth.

Cash used in investing activities was $3.1 million, $2.4 million and $8.6
million in 1994, 1995 and 1996, respectively, consisting in each of these years
primarily of purchases of property and equipment. Spending in 1994 primarily
represented progress payments on a project to add a second cyclotron to the
Company's manufacturing facility. This project began in 1993 and was completed
in 1995. Spending in 1995 represents the beginning of a project to add
cyclotrons three and four to the facility, while spending in 1996 represents the
continuation of the project to add cyclotrons three and four to the facility,
the purchase of 30 acres of land for the Company's expansion project and
spending on an assembly automation project. The expansion project for

18
<PAGE> 19

the addition of cyclotrons three and four that began in 1995 is estimated to
cost approximately $9.0 million and be completed in the first half of 1997. As
of January 23, 1997, approximately $8.5 million had been spent on this expansion
project.

On December 27, 1996, the Company entered into agreements for the purchase
of four additional cyclotrons. These four cyclotrons are part of a larger
expansion project that will also include new cyclotron, product assembly and
administrative facilities. Upon completion of the project, the Company plans to
consolidate its entire workforce at this one site. As of January 23, 1997, the
Company had already spent approximately $2.5 million on this project. Management
estimates the total cost of the project to be approximately $20.0 million.

Cash provided (used) by financing activities was $659,000, ($21,000) and
$2.6 million in 1994, 1995 and 1996, respectively. Cash flows from financing
activities relates principally to bank borrowings and repayments thereof and, in
1995 and 1996, proceeds from the exercise of stock options and warrants. In the
third quarter of 1994, Theragenics received funding on a $2.1 million loan
secured by the Company's cyclotron facility including a second cyclotron (the
"1994 Term Loan"). The 1994 Term Loan was to mature in 1998 and bore an interest
rate of 8.47% per annum. Of the $2.1 million loan, $1.4 million was used to pay
off an outstanding balance under an existing long-term financing while the
remainder was used to provide partial financing for the purchase of the second
cyclotron and the facility expansion to house it. As of December 8, 1996,
approximately $1.0 million remained outstanding on the 1994 Term Loan.

In December 1995, the Company amended and restated its existing bank credit
facility. The amended and restated bank credit facility (the "Bank Credit
Facility") initially consisted of a $1.0 million receivables credit facility and
an additional $2.0 million revolving credit facility. The Bank Credit Facility
was subsequently increased to $5.0 million. On December 9, 1996, the Company
amended and restated the Bank Credit Facility. The amended and restated Bank
Credit Facility (the "Second Credit Facility") consisted of an $11.0 million
revolving credit facility. Partial proceeds from the Second Credit Facility were
used to pay off the $1.0 million balance on the 1994 Term Loan, while borrowings
under the Bank Credit Facility were rolled over to the Second Credit Facility.
Borrowings under the Second Credit Facility are secured by substantially all of
the Company's assets. The Second Credit Facility contains certain covenants
limiting the payment of dividends, the amount of annual capital expenditures and
the incurrence of additional debt and requires the maintenance of certain
minimum financial ratios. As of December 31, 1996, the Company was in compliance
with all of such covenants. Borrowings under the Second Credit Facility may be
made, at the Company's option, at an interest rate equal to the London Interbank
Offered Rate ("LIBOR") plus 2% or the lender's prime rate as defined. At
year-end, $3.5 million was outstanding against the Second Credit Facility. The
Second Credit Facility terminates on June 30, 1997. At that time, the entire
amount outstanding against the credit facility may, at the Company's option, be
converted to a five-year term loan provided certain financial ratios are
attained. No assurances can be made that the Company will attain these ratios or
if it does that it will choose to convert said balance to the term loan. See
Note E of Notes to Financial Statements.

Management believes that the net proceeds of this offering, together with
current cash balances, cash from future operations and the Second Credit
Facility, will be sufficient to meet its working capital and capital expenditure
requirements for at least the next 24 months. See "Use of Proceeds."

19
<PAGE> 20

QUARTERLY RESULTS

The following table sets forth certain consolidated statements of
operations data for each of the Company's last eight quarters. This unaudited
quarterly information has been prepared on the same basis as the annual audited
information presented elsewhere in this Prospectus, reflects all adjustments
(consisting only of normal, recurring adjustments) necessary in management's
opinion for a fair presentation of the information for the periods covered and
should be read in conjunction with the financial statements and notes thereto.
The operating results for any quarter are not necessarily indicative of results
for any future period.

<TABLE>
<CAPTION>
1995 1996
------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues.............. $ 1,834 $ 1,912 $ 1,926 $ 2,195 $ 2,798 $ 2,727 $ 3,144 $ 3,688
------- ------- ------- ------- ------- ------- ------- -------
Cost of product sales....... 635 639 665 706 753 888 958 1,137
Selling, general and
administrative............ 604 674 607 511 693 771 722 1,012
Research and development.... 7 7 3 1 1 1 1 4
Other income (expense)...... 28 29 28 (21) 27 26 17 (34)
------- ------- ------- ------- ------- ------- ------- -------
Net earnings before income
taxes..................... 616 621 679 956 1,378 1,093 1,480 1,501
Income tax expense.......... 234 236 258 372 524 415 562 566
------- ------- ------- ------- ------- ------- ------- -------
Net earnings................ $ 382 $ 385 $ 421 $ 584 $ 854 $ 678 $ 918 $ 935
======= ======= ======= ======= ======= ======= ======= =======
Earnings per common share... $ 0.03 $ 0.03 $ 0.04 $ 0.05 $ 0.07 $ 0.06 $ 0.07 $ 0.08
Weighted average shares..... 11,539 11,784 11,937 12,134 12,106 12,204 12,298 12,372
</TABLE>

INFLATION

Management does not believe that the relatively moderate levels of
inflation which have been experienced in the United States in recent years have
had a significant effect on the Company's net sales or profitability.

20
<PAGE> 21

BUSINESS

GENERAL

Theragenics is a leader in the production and marketing of implantable
radiation devices used in the treatment of prostate cancer. The Company produces
and markets TheraSeed(R), an FDA-licensed device based on Pd-103, a radioactive
isotope. Management believes the Company is the only producer of Pd-103 for use
in medical devices. In the treatment of prostate cancer, TheraSeeds(R) are
implanted into the prostate in a one-time, minimally invasive procedure. The
radiation emitted by the seeds is contained within the immediate prostate area,
killing the tumor while sparing surrounding organs. TheraSeed(R) has been shown
in independent clinical studies to offer success rates that are comparable to or
better than other conventional therapies, while being associated with a reduced
incidence of side effects. In addition, TheraSeed(R) offers significant quality
of life and cost advantages. Since 1987, TheraSeed(R) has been used by
physicians in nearly 300 centers across the United States in approximately
13,000 procedures for prostate cancer, including approximately 4,000 procedures
in 1996. Sales of TheraSeed(R) increased 65% in 1995 and 58% in 1996 due to
reliable production from the Company's cyclotron-based manufacturing process and
increased demand for TheraSeed(R) as a result of significantly increased
marketing efforts and the release of favorable clinical data. TheraSeed(R) has
also been used on a limited basis to treat cancers of the pancreas, lung, head,
neck, oral cavity, brain and eye.

On February 24, 1997, the Company entered into a letter of intent with
Indigo Medical, Inc., a subsidiary of Johnson & Johnson, stating the intent to
grant to Indigo the exclusive worldwide right to market and sell TheraSeed(R)
for the treatment of prostate cancer. The letter of intent is subject to the
completion of definitive documentation and approval by the respective Boards of
Directors of the Company and Indigo. Management believes the proposed alliance
with Indigo would provide for sales growth and international expansion while
allowing the Company to focus its resources on maintaining its leadership in the
production of Pd-103 for prostate cancer treatment and other potential
applications. By leveraging the extensive worldwide marketing capability of
Indigo and Johnson & Johnson, the Company would eliminate the need to develop an
extensive, vertically integrated sales, marketing and education and training
network.

INDUSTRY OVERVIEW

Prostate Cancer

The prostate is a walnut-sized gland surrounding the male urethra, located
below the bladder and adjacent to the rectum. The two most prevalent prostate
diseases are benign prostatic hyperplasia ("BPH") and prostate cancer. BPH is a
non-cancerous enlargement of the innermost part of the prostate. Prostate cancer
is a malignant tumor that begins most often in the periphery of the gland and,
like other forms of cancer, may spread beyond the prostate to other parts of the
body. If left untreated, prostate cancer can

21
<PAGE> 22

metastasize to the lung or bone, resulting in death. The following table
summarizes the various stages of prostate cancer.

<TABLE>
<S> <C>
--------------------------- ------------------------------------------------------------
CLASSIFICATION STAGE OF PROGRESSION
------------------------------------------------------------------------------------------
A Clinically unsuspected
------------------------------------------------------------------------------------------
B Tumor confined to the prostate gland (localized)
------------------------------------------------------------------------------------------
C Tumor outside prostate capsule
------------------------------------------------------------------------------------------
D Metastasized into pelvic lymph nodes
------------------------------------------------------------------------------------------
D2 Metastasized into distant lymph nodes,
organs, soft tissues or bone
------------------------------------------------------------------------------------------
</TABLE>

Source: American Urological Association Today

Prostate cancer can grow slowly or quickly and virulently, and its cause
and potential methods of prevention are currently unknown. The risk of
developing prostate cancer increases with age. By way of comparison, studies
indicate that one in five men in the United States can expect to develop the
disease, whereas one in eight women in the United States may expect to contract
breast cancer. With prompt treatment, the long-term outlook for men with
localized, early-stage prostate cancer is considered favorable.

Approximately 58% of new prostate cancer diagnoses are defined to be at the
localized stage of the disease. Prostate cancer is typically curable when
detected early, but the lack of early-stage symptoms makes diagnosis difficult.
Until 1988, the best method of routine examination had been the digital rectal
exam, which requires the existence of solid tumors for detection. In 1988, a
diagnostic test was developed that determines the amount of prostate specific
antigen ("PSA") present in the blood. PSA is found in a protein secreted by the
prostate, and elevated levels of PSA are associated with either prostatitis (a
noncancerous inflammatory condition) or a proliferation of cancer cells in the
prostate. The widespread acceptance of the PSA test greatly improved physicians'
ability to diagnose prostate cancer at an early stage and significantly
increased the number of new cases diagnosed annually. Industry studies have
shown that the PSA test can detect prostate cancer as many as five years earlier
than the digital rectal exam. The PSA test is currently part of the routine
medical check-up for prostate assessment. Transrectal ultrasound tests and
biopsies are typically performed on patients with elevated PSA readings to
confirm the existence of cancer.

Treatment Options

In addition to seeding, prostate cancer can be treated with RP, EBRT,
hormone therapy, chemotherapy and watchful waiting. Some of these therapies may
be combined. The treatments that have been most successful are those that remove
or kill all of the cancerous tissue while avoiding excessive damage to the
surrounding healthy tissue. When the cancerous tissue is not completely
eliminated, the cancer typically returns to the primary site, often with
metastases to other areas. The following is a summary of treatment options for
prostate cancer other than seeding.

Radical Prostatectomy is a major surgical procedure that involves the
complete removal of the prostate gland. This procedure has been used for 30
years and is considered to be the standard medical treatment for early-stage,
localized tumors. RP typically requires a three to seven day hospital stay and a
lengthy recovery period (generally four to six weeks). Side effects include
impotence and incontinence. The cost of RP ranges from $20,000 to $30,000 per
procedure, excluding treatment for side effects and postoperative complications.
Approximately 120,000 men underwent RP in 1995.

External Beam Radiation Therapy involves directing a beam of radiation at
the prostate gland to destroy tumorous tissue and has been a common technique
for treating many kinds of cancer since the 1950s. EBRT has typically been
reserved for early-stage prostate cancer in locally advanced cases where the
patient presents an inappropriate surgical risk. The therapy consists of a
series of daily treatments usually lasting from six to eight weeks. Rectal
complications resulting from damage to the rectal wall caused by the radiation
beam as it travels to the prostate are the most common side effects. Principal
side effects also include incontinence and

22
<PAGE> 23

impotence, but these side effects generally occur with less frequency than they
do following RP. EBRT is estimated to cost between $12,000 to $15,000 per
patient. Approximately 35,000 men underwent EBRT in 1995.

Ancillary Therapies, primarily consisting of hormone therapy and
chemotherapy, are used to slow the growth of cancer and reduce tumor size, but
are generally not intended to be curative. Ancillary therapies are often used
during advanced stages of the disease to extend life and relieve symptoms. Side
effects of hormonal drug therapy include increased development of breasts,
impotence and decreased libido. In addition, many hormone pharmaceuticals
artificially lower PSA levels in patients, which can interfere with staging the
disease and monitoring its progress. Side effects of chemotherapy include
nausea, hair loss and fatigue. Drug therapy and chemotherapy require long-term,
repeated administration of medication on an outpatient basis.

Watchful Waiting is recommended by some physicians in certain circumstances
based on the severity and growth rate of the disease, as well as on the age and
life expectancy of the patient. The aim of watchful waiting is to monitor the
patient, treat some of the attendant symptoms and determine when more active
intervention is required. Watchful waiting requires periodic physician visits
and PSA monitoring.

In addition to the treatment options described above, other forms of
treatment are being developed and tested in clinical trials. Cryosurgery, which
freezes and destroys diseased tissue, has been used to treat prostate cancer,
but to the Company's knowledge has not demonstrated a long-term curative effect.
Photon radiosurgery, a developmental stage form of treatment that emits
low-energy x-rays from a probe and irradiates the tumor from the inside out, is
undergoing clinical studies for the treatment of metastatic brain tumors.
Clinical trials for prostate cancer are not anticipated to begin until late 1997
or early 1998.

THE THERAGENICS SOLUTION

Theragenics produces and markets TheraSeed(R), an FDA-licensed device
currently used principally in seeding for the treatment of prostate cancer. In
this application, TheraSeeds(R) are implanted throughout the prostate gland in a
minimally invasive surgical technique under ultrasound guidance. The radiation
emitted by the seeds is contained within the immediate prostate area, killing
the tumor while sparing surrounding organs. The seeds, whose capsules are
biocompatible, are not removed after delivering their radiation dose to the
prostate. TheraSeed(R) is best suited for solid localized tumors and is usually
classified as a treatment for early-stage disease.

Management believes TheraSeed(R) offers significant advantages over RP and
EBRT. Recent multi-year clinical studies indicate that seeding offers success
rates that are comparable to or better than those of RP or EBRT and reduced
complication rates. In addition, the TheraSeed(R) treatment is a one-time
outpatient procedure with a two to three day recovery period. By comparison, RP
is an inpatient procedure typically accompanied by a three to seven day hospital
stay and a four to six week recovery period, and EBRT involves six to eight
weeks of daily radiation treatments. Treatment with TheraSeed(R) costs $10,000
to $15,000 per procedure, which is substantially lower than the cost of RP and
comparable to the cost of EBRT. In addition, management believes TheraSeed(R)
offers significant competitive advantages over I-125, an alternative
radioisotope used in seeding, as a result of Pd-103's higher dose rate and
shorter half-life.

TheraSeed(R) is a radioactive "seed" approximately 4.5 millimeters long and
0.81 millimeters wide, or approximately the size of a grain of rice. Each seed
consists of a biocompatible titanium capsule containing the radioactive
substance Pd-103. The half-life of Pd-103, or the time required to reduce the
emitted radiation to one-half of its initial level, is 17 days, resulting in the
loss of almost all radioactivity in less than four months.

Treatment Protocol

Prostate cancer patients electing seed therapy first undergo a transrectal
ultrasound test or CT scan, which generates a two-dimensional image of the
prostate that is transformed into a three-dimensional image. With the assistance
of a computer program, a treatment plan is designed that calculates the number
and placement of the seeds required for the best possible distribution of
radiation to the prostate.

23
<PAGE> 24

Once the implant model has been constructed, the procedure is scheduled and
the seeds are ordered. The number of seeds implanted ranges from 40 to 100, with
the number of seeds varying with the size of the prostate. The procedure is
usually performed under local anesthesia in an outpatient setting. An ultrasound
probe is first positioned in the rectum to guide needle placement and seed
location. Correct needle placement is facilitated by a template, or grid, that
covers the perineum (the area between the scrotum and rectum through which the
needles are inserted) and is attached to the ultrasound probe. Implant needles
loaded with seeds are assigned to the appropriate template holes as indicated in
the treatment plan. Each needle is guided through the template and then through
the perineum to its predetermined position within the prostate under direct
ultrasound visualization. The seeds are implanted as the needle is withdrawn
from the prostate. When all seeds have been inserted, the ultrasound image is
again reviewed to verify seed placement.

An experienced practitioner typically performs the procedure in
approximately 60 to 90 minutes, with the patient often returning home at day's
end. Recovery time is typically two to three days. In contrast, RP generally
requires up to three hours to perform, with a three to seven-day hospital stay
and a typical recovery period of four to six weeks. EBRT requires daily
outpatient radiation treatments for a period of six to eight weeks.

Seeding has been used as a treatment for prostate cancer since the early
1970s, when I-125 seeds were implanted in prostate tumors under open surgery.
However, this "free hand" technique fell into disfavor because the seeds were
often haphazardly arranged leading to inhomogeneous dosimetry, with suboptimal
antitumor effect in underdosed areas and significant damage to collateral
tissues, particularly in the urethra and rectum, in overdosed areas. Clinical
results indicate that the computer modeling and advanced imaging and other
techniques used in seeding today have virtually eliminated these drawbacks.

Clinical Results

Strong Efficacy Results. Clinical data indicates that seeding offers
success rates that are comparable to or better than those of RP or EBRT. In a
study described in Urology Times in September 1994, Drs. John Blasko and Haakon
Ragde of the Northwest Tumor Institute in Seattle, Washington, found, in a study
of 298 men with early-stage prostate cancer, an actuarial local control rate of
96% after treatment with either Pd-103 or I-125 seed implantation. A study
published in 1995 by Drs. Blasko and Ragde found 100% of the 111 patients
treated with TheraSeed(R) for localized early-stage prostate cancer showed no
localized prostate cancer after treatment follow-up ranging from 12-73 months,
with a median follow-up of 32 months. The actuarial disease-free rate at 54
months was 89%. Updating their previous study on patients treated with Pd-103 or
I-125 for a paper prepared for the First International Consultation on Prostate
Cancer organized by the World Health Organization in June 1996, Drs. Blasko and
Ragde found a seven-year actuarial local disease-free rate of 97% for 320
patients treated for localized early-stage prostate cancer. They also presented
therein a seven-year actuarial local disease-free rate of 87% for 188 patients
who were considered to represent higher risks of locally advanced prostate
cancer and were treated with a combination of Pd-103 or I-125 seeding and a
modified dose of EBRT. A study by Dr. Michael Dattoli of University Community
Hospital, Tampa, Florida and Dr. Kent Wallner of Memorial Sloan-Kettering Cancer
Center, New York, New York, published in the International Journal of Radiation
Oncology, Biology and Physics in July 1996 found a three-year actuarial freedom
from biochemical failure (based on PSA scores) of 79% among 73 patients with
clinically localized, high risk prostate cancer who were treated with EBRT in
combination with Pd-103. This compares favorably to results reported for
patients treated with conventional dose EBRT alone. These locally advanced cases
are significant because RP guidelines would not classify them as suitable for
surgical treatment.

Reduced Incidence of Side Effects. Because TheraSeed(R) delivers a highly
concentrated and confined dose of radiation directly to the prostate, healthy
surrounding tissues and organs are spared excessive radiation exposure. This
results in significantly fewer and less severe side effects and complications
than are incurred with other conventional therapies. RP generally results in a
50-90% impotence rate and a 2-65% incontinence rate, and EBRT generally results
in impotence and incontinence rates of 40-60% and 10-25%, respectively. In
contrast, according to the 1995 study by the Northwest Tumor Institute described
above, it was reported that 85% of seed therapy patients under 70 years of age
who were potent before the procedure remained so. In

24
<PAGE> 25

addition, patients who had not had a previous transurethral prostate resection
("TURP") suffered no incontinence. Patients having a previous TURP have
compromised urinary tracts and can experience higher rates of incontinence.
Patients receiving seeding can expect some urinary urgency post-implantation as
the Pd-103 delivers its radiation dose.

Lower Treatment Cost. The total cost of seeding is approximately $10,000
to $15,000 per procedure. This is approximately one-half the cost of RP, which
ranges from $20,000 to $30,000, excluding treatment for side effects and
post-operative complications, and is comparable to the cost of EBRT, which
ranges from $12,000 to $15,000 for a six-to-eight week course of treatment.

The following table compares the methods of treatment discussed above with
a minimum of five-year outcomes data:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
EXTERNAL BEAM
RADICAL PROSTATECTOMY RADIATION THERAPY SEEDING
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outpatient procedure One-time outpatient
Inpatient procedure with with daily treatments for procedure lasting
Nature of Treatment 3-7 day hospital stay 6-8 weeks 60-90 minutes
- ------------------------------------------------------------------------------------------------------------
Targeted Cancer Stage A and B A, B and C A and B
- ------------------------------------------------------------------------------------------------------------
Five Year Success Rate(a) 78-83% 50% 80-100%
- ------------------------------------------------------------------------------------------------------------
Recovery Period Generally 4-6 weeks None after 6-8 weeks 2-3 days
- ------------------------------------------------------------------------------------------------------------
Impotence Rate(b) 50-90% 40-60% 5-15%
- ------------------------------------------------------------------------------------------------------------
Incontinence Rate(b) 2-65% 10-25% 0-2%
- ------------------------------------------------------------------------------------------------------------
Cost Per Procedure $20,000-$30,000 $12,000-$15,000 $10,000-$15,000
- ------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Calculated as the percent of patients disease-free after five years. Rates
may be actuarially computed.
(b) The percent of patients with normal continence and potency prior to
treatment not preserving such attributes. Excludes patients with previous
TURPs.

Management believes TheraSeed(R) represents the best available form of
seeding. Another radioactive isotope, Iodine-125 ("I-125"), is also commercially
available as a permanent implant. TheraSeed(R) is the first commercially
available alternative isotope to I-125 since I-125's introduction in the 1970s.
Management believes I-125 and Pd-103 are used with relatively equal frequency in
substantially all prostate cancer seeding procedures. Another technique known as
"temporary seeding," which involves the temporary placement of an Iridium-based
source in or near a tumor, is used in a very small percentage of cases.
Management believes Pd-103 has the following advantages over I-125: (i) Pd-103
delivers three times the dose rate of I-125, which can yield advantages in
treating aggressive cancers, (ii) Pd-103 has approximately one-third the
half-life of I-125, which shortens radiation induced side effects and exposure
to medical personnel in treatment follow-up; and (iii) unlike I-125, Pd-103 is
nontoxic and non-volatile as it decays. Management is not aware of any clinical
studies directly comparing the efficacy of Pd-103 and I-125.

STRATEGY

In an effort to enhance market penetration and maintain technological
leadership in the field of radiological treatment of diseases, the Company is
implementing the following strategies. In the event the Company enters into a
definitive agreement with Indigo, management anticipates that Indigo will assume
and expand upon certain of the strategic initiatives described below.

- Increase Physician Awareness of Seeding and TheraSeed(R). Physician
acceptance is critical to the increased use of seeding as a form of
treatment for prostate cancer. The primary physician for the treatment of
prostate cancer is the urologist. RP has a long history as the treatment
of choice for early-stage, localized prostate cancer and urologists are
accustomed to performing this procedure. Compelling long-term outcomes
data is therefore key to the development of physician interest in seeding
as an

25
<PAGE> 26

alternative form of prostate cancer treatment. To promote such interest,
the Company is publishing the results of recent clinical studies
illustrating TheraSeed(R)'s effectiveness in treating prostate cancer and
is supporting related research and publication efforts by physicians using
TheraSeed(R). Management recognizes the importance of well-trained
physicians and the need for quality training in advancing the growth of
this product and is exploring opportunities toward this end. Management
has historically lent financial support to training centers and expects to
continue this practice. By increasing physician awareness of TheraSeed(R)
and its effectiveness in treating prostate cancer, the Company plans to
increase demand for TheraSeed(R) within the medical community.

- Maintain A Strong Commitment to Providing Cancer Information Services to
Patients. Management believes that patients are taking an active role in
choosing their medical treatment. In response to this, Theragenics intends
to maintain its efforts to increase patient awareness of alternative
treatments and the importance of second opinions through its Cancer
Information Center as well as other avenues of increasing awareness.

- Maintain Technological Leadership. Management believes the Company is
the only producer of Pd-103-based radioactive seeds. The Company's
strategy is to be a technological leader in the cancer treatment industry
and believes its proprietary technology possesses performance advantages
over competitive seed technology. The Company will also continue to focus
on production technology to maintain leadership in this area.

- Explore and Evaluate Opportunities for Strategic Alliances. The Company
is negotiating the terms of a strategic alliance with Indigo Medical,
Inc., a subsidiary of Johnson & Johnson, and has stated an intent to grant
to Indigo the exclusive worldwide right to market and sell TheraSeed(R)
for the treatment of prostate cancer. Management believes this alliance
will enable the Company to focus its resources on maintaining its
leadership in the production of Pd-103 for prostate cancer treatment and
other potential applications without being required to develop an
extensive, vertically integrated sales, marketing, education and training
network. Synergies with other large healthcare-related companies may be
identified in the future and Theragenics may pursue strategic
relationships with such companies on its own or through its relationship
with Indigo. Such relationships could relate to marketing, product
development, supply, distribution, research or other aspects of the
Company's operations. Potential strategic allies include large
pharmaceutical or medical device companies, health maintenance
organizations, outpatient treatment centers and companies, hospitals,
research centers, universities, start-up companies or other entities.
Management believes the Company's long-term growth and strong competitive
position could be enhanced through such alliances or affiliations and
intends to actively seek suitable opportunities for such relationships.

- Promote Seeding to Health Care Payors. A substantial portion of the cost
of prostate cancer treatment in the United States is currently reimbursed
by the Medicare program and other third party payors. The amount of
reimbursement for prostate cancer treatment is likely to have a
significant impact on the decisions of urologists, oncologists and other
health care providers regarding treatment options. The Company has been
actively engaged in efforts to ensure that adequate and fair reimbursement
for seeding is available for the doctors performing the procedure. The
Company has long-standing relationships with patient advocacy groups that
share with the Company a desire to ensure unrestricted access to the
TheraSeed(R) treatment alternative. The Company plans to continue these
activities as they relate to the Company's business.

- Explore New Distribution Channels and Product Applications. Management
believes significant long-term international marketing opportunities exist
for TheraSeed(R). Although no meaningful overseas market currently exists
for the product, management believes a variety of factors, including
international introduction of the PSA test, may create an international
market for TheraSeed(R) in the future. In addition, although the Company
has focused primarily on prostate cancer to date, management believes
TheraSeed(R) could be used increasingly to treat other forms of cancer,
including cancers of the pancreas, lung, head, neck, oral cavity, brain
and eye. Management plans to support programs to identify additional
oncological and non-oncological uses for TheraSeed(R) and Pd-103.

26
<PAGE> 27

PRODUCTION

The production of TheraSeed(R) is dependent upon the availability of
Pd-103, as well as Rhodium-103 ("Rh-103"), titanium, graphite and lead. With the
exception of Pd-103, all of these raw materials are relatively inexpensive and
readily available from third party suppliers.

Pd-103 is a radioactive isotope that can be produced by neutron bombardment
of Pd-102 in a nuclear reactor, or by proton bombardment of Rh-103 in a
cyclotron. Following the production of Pd-103 from Rh-103 in the cyclotron, the
Pd-103 is harvested from the cyclotron and moved through a number of proprietary
production processes until it reaches its final seed form used by doctors.

Until 1993, the Company used the neutron bombardment method of producing
Pd-103. Under this method, the Company was required to contract with third
parties for the enrichment services necessary to produce a useable feed material
for production of Pd-103 in a nuclear reactor. Additionally, the Company was
dependent upon a university and a United States government reactor for the
irradiation of this feed material to yield Pd-103. The government facility was
subject to increasing political uncertainty regarding its control and funding,
and neither the university nor the government facility operated on a commercial
timetable. These factors combined to limit the Company's ability to obtain
Pd-103 on a timely and consistent basis.

To increase its control over timely and consistent availability, quality
and cost of Pd-103, the Company turned to the proton bombardment method of
producing Pd-103. To accomplish this alternative method of production, the
Company contracted in 1992 for the purchase of a cyclotron for in-house
production of Pd-103. After the cyclotron was delivered and reliable production
of Pd-103 was proven, the Company discontinued its reliance on outside vendors
for enrichment and irradiation services.

The Company has three cyclotrons in production and is currently installing
a fourth, which is scheduled to become operational during the first half of
1997. The Company has ordered four additional cyclotrons for installation in
fiscal 1998. The Company's cyclotrons are designed, built, installed and tested
by a Belgian company specializing in the construction of such equipment. A
number of proprietary design modifications are incorporated in the cyclotrons.
These modifications are subject to confidentiality agreements with the cyclotron
manufacturer and the Company's own personnel.

Due to the highly sophisticated and technical nature of the equipment, the
Company has encountered delays and difficulties in the construction,
installation and testing of its cyclotrons. Management cannot be certain that
such problems will not occur in connection with the construction, installation
and testing of the cyclotrons to be installed in 1998. See "Risk
Factors -- Production Risks; Manufacturing Expansion."

Cyclotron operations constitute only one component of the TheraSeed(R)
manufacturing process. Because the production of TheraSeed(R) is highly
sensitive and labor intensive, management is focusing significant attention and
effort on automating and otherwise improving all aspects of the Company's
manufacturing process. Although the automation process is difficult and time
consuming, management believes it will improve efficiency, further reduce
radiation exposure to personnel and provide additional production capacity for
TheraSeed(R).

MARKETING

The Company's marketing program is aimed at increasing awareness of
TheraSeed(R) within the medical community and the potential patient population,
as well as adding value to its customers' medical practices.

Strategic Alliance. The Company recently entered into a letter of intent
with Indigo Medical, Inc., a subsidiary of Johnson & Johnson, stating the intent
to grant to Indigo the exclusive worldwide right to market and sell TheraSeed(R)
for the treatment of prostate cancer. Indigo would also assume responsibility
for the education and training of urologists, radiation oncologists and other
personnel involved in the use of TheraSeed(R). The letter of intent also
contemplates that Indigo will have a first right of negotiation with respect to
additional uses of TheraSeed(R) and other products that may be developed by the
Company.

27
<PAGE> 28

Education/Awareness. Bringing attention to prostate cancer and its
treatment alternatives is a primary focus of the Company's marketing program. As
part of its pull marketing strategy, the Company works to disseminate prostate
cancer information through general interest stories in the print and broadcast
media. To accomplish this strategy, the Company uses its own in-house network of
media contacts as well as public relation firms. Theragenics also has an
advertising program aimed at men over 50 that promotes options for the treatment
of prostate cancer and stresses the importance of alternative treatments and
obtaining second opinions. The Company also staffs its own Cancer Information
Center to answer questions about the TheraSeed(R) treatment and assist cancer
patients in locating physicians trained in seeding. Representatives of the
Company regularly attend trade shows and conventions where the Company is
visible to large numbers of urologists, radiation oncologists and patients.

Advocacy. The Company has supported the writing and publication of a book
by a TheraSeed(R) patient, aided patient support groups, sponsored speakers on
prostate cancer, and has been active with cancer information hotlines such as
the American Cancer Society. Theragenics has fought and continues to fight for
adequate reimbursement for seed implantation from Medicare and other third party
payors. Theragenics has also advocated treatment opportunities for military
veterans.

Scholarship. The Company actively supports the writing of scholarly
articles by doctors using TheraSeed(R) and the publication of these articles in
medical journals. The Company also supports and encourages doctors using
TheraSeed(R) to present papers to and speak at seminars and symposiums on
prostate disease.

Customer Service. The Company performs a value-added service to the
physician customer by directing patients seeking additional information from
Theragenics' Cancer Information Center to one of the nearly 300 centers across
the United States performing the TheraSeed(R) treatment. Theragenics also
provides assistance to physicians newly trained in the TheraSeed(R) treatment by
providing the doctor or the medical center with consultative advice on
increasing the visibility of the practice and the new treatment being performed
there. Theragenics retains a company specializing in medical reimbursement to
assist its customers in obtaining adequate reimbursement from third party
payors.

Physician Training. Management recognizes the marketing benefits that can
be generated by a well-trained seeding physician population and the need for
quality training to achieve that end. Physicians are currently trained at three
seeding education centers across the United States.

THERASPHERE(R)

Theragenics has also participated in the development of TheraSphere(R), a
microscopic radioactive glass sphere designed for the treatment of liver cancer.
The Company holds a worldwide exclusive license from the University of Missouri
for the use of the technology required to produce TheraSphere(R). The Company
has granted to Nordion International, Inc. ("Nordion") an exclusive worldwide
sublicense to manufacture, distribute and sell TheraSphere(R) for any
application. TheraSphere(R) has been approved for distribution in Canada, but
has not been approved by the FDA for distribution in the United States. Under
the terms of the sublicense, Nordion has agreed to obtain the necessary
regulatory approvals for distribution of TheraSphere(R) in the United States and
other countries. The commercial development and regulatory approval of
TheraSphere(R) is still in its early stages, and management does not anticipate
significant revenues from TheraSphere(R) within the foreseeable future.

A TheraSphere(R) treatment dose contains approximately five million
yttrium-90 glass spheres that are each approximately half the diameter of a
human hair. The radiation dose is delivered to the tumor by

28
<PAGE> 29

introducing the TheraSphere(R) by catheter into the hepatic artery, which
carries arterial blood to the liver. Because of greater blood flow to tumors
compared to healthy liver tissue, the microspheres concentrate in the
capillaries feeding the tumor. The concentration of microspheres in healthy
tissue is much lower. Because of the ability to place the radiation source in
such close proximity to the tumor, TheraSphere(R) can deliver a radiation dose
to the tumor cells five times as strong as that which can be delivered via
external beam radiation.

PATENTS AND LICENSES; TRADE SECRETS

The Company's success is dependent upon protecting its proprietary
technology for the production of Pd-103. The Company relies in part on
combinations of patent, trademark and trade secrecy laws, along with contractual
provisions, to protect its intellectual property rights and its technology. The
effectiveness of these various types of protection can be limited, however, by
variations in laws and enforcement procedures from country to country. It is
possible that competitors may independently develop similar technology or
otherwise obtain access to the Company's intellectual property assets.

The Company holds United States patents directed to Pd-103 based on its
production using both cyclotrons and nuclear reactors. The Company also has
corresponding patents in Canada, South Africa, Japan and the 10 countries of the
European patent convention, and a PCT patent application on file for Japan,
Australia, New Zealand, Canada, and Europe (representing 16 European countries)
as well as a direct filing in Mexico. The Company may file additional patent
applications from time to time and considers the ownership of patents important,
but not necessarily essential, to its operations. The Company also uses a
strategy of confidentiality agreements and trade secret treatment to provide
primary protection to a number of proprietary design modifications in the
cyclotrons, as well as various production processes.

The Company also holds a worldwide exclusive license from the University of
Missouri for the use of technology required for producing TheraSphere(R).
Theragenics holds the rights to all improvements developed by the University of
Missouri on this technology. The Company, in turn, sublicenses exclusive
worldwide rights to this technology and all improvements to Nordion. Pursuant to
its license agreement with the University of Missouri, the Company is obligated
to pay the University the greater of a fixed annual amount or a percentage of
the gross sales amount derived from the sale of TheraSphere(R).

Theragenics holds patents for technology concerning methods for delivery of
TheraSphere(R) in several countries, including the United States, Canada,
Australia, Argentina, South Africa and the 10 countries of the European patent
convention, and has patent applications on file in other countries, including
Japan. The Company exclusively licenses this technology to Nordion for worldwide
use.

The Company relies to a significant degree on trade secrets, proprietary
know-how and technological advances that are either not patentable or which the
Company chooses not to patent. In particular, the Company has designed certain
modifications to its cyclotrons as well as various production processes that it
deems to be proprietary. The Company seeks to protect non-patented proprietary
information, in part, by confidentiality agreements with suppliers, employees
and consultants. See "Risk Factors -- Intellectual Property Rights; Dependence
on Trade Secrets."

COMPETITION

The Company competes in a market characterized by technological innovation,
extensive research efforts and significant competition. In general, TheraSeed(R)
competes with conventional methods of treating localized cancer such as RP and
EBRT. RP currently represents the standard medical treatment for early-stage,
localized prostate cancer. RP has a long history of favorable clinical results
and physicians have developed a high degree of familiarity and comfort with this
procedure. EBRT is also a well-established method of treatment and is widely
accepted for patients who do not represent a good surgical risk or whose
prostate cancer has advanced beyond the stage for which surgical treatment is
indicated. RP and EBRT are therefore well entrenched in the medical community
and in the universities and schools providing medical education. Management
believes that if general conversion from these established procedures to
TheraSeed(R) treatment

29
<PAGE> 30

does occur, such conversion will be the result of a combination of equivalent or
better efficacy, reduced incidence of side effects and complications, lower
cost, other quality of life issues and pressure by health care providers and
patients.

In addition, I-125 is commercially available as a permanent implant and
competes with TheraSeed(R). Management believes I-125 and Pd-103 are used with
relatively equal frequency in prostate cancer seeding procedures. I-125's dose
rate is approximately one-third that of Pd-103, however, and its half-life is
three times longer. Management believes Pd-103 enjoys a competitive advantage
over I-125 based on: (i) a higher dose rate, which can yield advantages in
treating aggressive cancers, (ii) a shorter half-life, which shortens radiation
induced side effects and exposure to medical personnel in treatment follow-up;
and (iii) Pd-103 is nontoxic and non-volatile as it decays. Management is aware
of no other similar radioactive products competing directly with TheraSeed(R).
To management's knowledge, Theragenics is the only company in the world that
commercially produces Pd-103 for medical devices.

Many companies, both public and private, are researching new and innovative
methods of treating cancer. In addition, many companies, including many large,
well-known pharmaceutical, medical device and chemical companies, are engaged in
radiological pharmaceutical and device research. Significant developments by any
of these companies could lessen or eliminate the demand for the Company's
products. See "Risk Factors -- Technological Developments and Competition."

GOVERNMENT REGULATION

The Company's present and intended future activities in the development,
manufacture and sale of cancer therapy products are subject to various laws,
regulations, regulatory approvals and guidelines. Within the United States, the
Company's therapeutic radiological devices must comply with the U.S. Federal
Food, Drug and Cosmetic Act, which is enforced by the FDA.

Before a new device can be marketed in the United States, the manufacturer
generally must obtain either (i) FDA clearance of a pre-market notification
under Section 510(k) of the Federal Food, Drug & Cosmetic Act or (ii) FDA
approval of a pre-market approval application (a "PMA"). Following submission of
the 510(k), the manufacturer may not market the new device until an order is
issued by the FDA finding the device to be "substantially equivalent" to a
legally marketed medical device (a "predicate device"). The 510(k) process can
be lengthy and expensive and the issuance of such clearance is often uncertain.
If a new device is not eligible for clearance under the 510(k) process, a PMA
application must be filed with and approved by the FDA before the product may be
marketed. The PMA process requires the performance of extensive clinical trials
to determine safety and efficacy, is significantly more complex, expensive and
time consuming than the 510(k) process and typically requires five to seven
years. In countries in which the Company's products are not currently approved,
the use or sale of the Company's commercial products will require approvals by
government agencies comparable to the FDA. The Company is also required to
adhere to applicable FDA regulations for Good Manufacturing Practices, including
extensive record keeping and reporting and periodic inspections of manufacturing
facilities. Similar requirements are imposed in other countries.

The Company obtained FDA 510(k) clearance in 1986 to market TheraSeed(R)
for, in general, the treatment of localized solid tumors. A new 510(k) clearance
is required for any modifications in the device or its labeling that could
significantly affect the safety or effectiveness of the original product. Under
the FDA's regulatory scheme, the decision whether to seek 510(k) clearance for a
modified device is left to the manufacturer in the first instance, and
management has thus far determined that no such clearance has been required. The
FDA has the right to review and revoke 510(k) clearance at any time. A PMA may
be required for future products or for future modifications to TheraSeed(R).

The Company's handling of radioactive materials is governed by the State of
Georgia in agreement with the NRC. The users of TheraSeed(R) are also required
to possess licenses issued either by the states in which they reside or the NRC
(depending upon which state is involved and which of two possible processes are
used by the Company to produce TheraSeed(R)). Use licenses also will be required
by some of the foreign

30
<PAGE> 31

jurisdictions in which the Company may attempt to market its products. Although
the regulatory standards applicable to products containing radioactive materials
produced as a by-product of nuclear fission reactions are uniform nationally,
uniform regulatory standards do not exist at the present time with respect to
TheraSeed(R) as produced by the Company's current manufacturing process. To
date, these standards have imposed no impediment to marketing and management
anticipates they will not pose an impediment unless the regulatory environment
changes or new rulings are adopted. Furthermore, the Company's expansion plans
require the Company to secure additional permits and licenses from a number of
environmental, health and safety regulatory agencies. The Company believes, but
cannot assure, that it will be able to acquire the permits and licenses
necessary for its planned expansion of its manufacturing capacity in accordance
with the Company's timetable for its expansion. The Company to date has not
experienced delays in licensing any of its facilities or cyclotrons.

The Company is required under its radioactive materials license to maintain
radiation control and radiation safety personnel, procedures, equipment and
processes, and to monitor its facilities and its employees and contractors. The
Company is also required to provide financial assurance that end-of-life
radiological decommissioning of its cyclotrons and other radioactive areas of
its property that contain radioactive materials will be adequately funded by the
Company. The Company has so far been successful in explaining to the Georgia
Department of Natural Resources that it will not have to dispose of its
cyclotrons, but instead will be able to sell them for re-use if its ceases to
operate them. Thus, the Company is only required to estimate and provide
financial assurance for the end-of-life remediation and disposal costs
associated with ancillary structures, such as plumbing, laboratory equipment and
chemical processing facilities. The Company's decommissioning obligations will
increase as its production capacity is expanded. Moreover, if the Georgia
Department of Natural Resources were to require that the Company include the
cost of decommissioning its cyclotrons in its financial assurance demonstration,
the amount of money required to be set aside by the Company to cover
decommissioning costs could dramatically increase.

The Company disposes of low level radioactive waste to licensed commercial
radioactive waste treatment or disposal facilities for incineration or land
disposal. The amount of radioactive waste generated by the Company's operations
will increase following implementation of the Company's planned expansion of its
production capacity. There is a high degree of regulatory uncertainty associated
with commercial radioactive waste disposal facilities, and the cost of disposing
of radioactive waste has increased dramatically in recent years. To mitigate the
impact of a potential moratorium on radioactive waste disposal at the Company's
current disposal site, the Company sought and received a license from the
Georgia Department of Natural Resources for temporary on-site storage capacity.
The Company believes that it would be able to obtain additional licensure
necessary to enable it to continue production for a substantial period of time
in the event its current waste disposal contractor ceases to be able to receive
the Company's waste and an alternative disposal site is not readily available.
The Company also handles nonradioactive chemical substances in the normal course
of its manufacturing operations that are subject to a broad range of state and
federal environmental regulations, and which could cause harm to humans or to
the environment if improperly handled or released to the environment. Management
believes the Company is in compliance with all state and federal regulations.
The Company provides training and monitoring of its personnel with two full time
regulatory and safety officers to facilitate the proper handling of all
materials.

See "Risk Factors -- Government Regulation."

EMPLOYEES

As of December 31, 1996, the Company had 59 full-time employees (including
executive personnel). Of this total, 37 were engaged in development and
production of the Company's products. The remainder were engaged in marketing
and general corporate activities. The Company's employees are not represented by
a union or a collective bargaining unit, and management considers employee
relations to be good.

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<PAGE> 32

PROPERTIES

The Company owns a 15,245 square-foot, single-story building in Buford,
Georgia, leases a 10,752 square-foot, single-story building in Norcross,
Georgia, and leases a 2,692 square-foot suite of offices in a four-story office
building in Norcross, Georgia. The larger Norcross facility houses the Company's
assembly, shipping, marketing and administrative operations, the smaller
Norcross facility provides executive office space and the Buford facility houses
the Company's cyclotrons and its raw material processing operations. In 1996,
the Company purchased 30 acres of land adjacent to its Buford facility.
Management plans to use this land for long-term expansion of the Company's
production facilities as manufacturing expands to meet increasing sales demand
and eventually plans to relocate all functions currently housed in the leased
Norcross facilities to the facilities planned for construction on the 30 acres
of land adjacent to its current Buford facility.

LEGAL PROCEEDINGS

There are currently no material legal proceedings pending or, to the
knowledge of management, threatened against the Company.

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<PAGE> 33

MANAGEMENT

DIRECTORS

The following table sets forth certain information with respect to the
directors and executive officers of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
M. Christine Jacobs(1)..................... 46 President, Chief Executive Officer and Director
Bruce W. Smith............................. 43 Treasurer and Chief Financial Officer
Dean Fitzgerald............................ 50 Vice President, Business Development
John V. Herndon(1)......................... 56 Director
Peter A. A. Saunders(2)(3)................. 55 Director
Charles R. Klimkowski(3)(4)................ 61 Director
Orwin L. Carter, Ph.D.(2)(3)............... 54 Director
Otis Brawley, M.D.(3)(4)................... 37 Director
</TABLE>

- ---------------

(1) Member of the Nominating Committee.
(2) Member of the Audit Committee.
(3) Member of the Stock Option Committee.
(4) Member of the Compensation Committee.

M. Christine Jacobs joined the Company as National Sales Manager in 1987
and was subsequently promoted to Vice President of General Sales and Marketing.
Since 1992, Ms. Jacobs has been President and Chief Operating Officer of the
Company, and in August 1993 Ms. Jacobs was promoted to the position of Chief
Executive Officer while retaining the position of President. Ms. Jacobs also
serves as a director of the Georgia Biomedical Partnership, a nonprofit
organization which promotes economic and environmental development beneficial to
the growth of biomedical business within Georgia.

Bruce W. Smith has served as Treasurer and Chief Financial Officer of the
Company and Secretary of the Board of Directors since 1989. Mr. Smith has served
in financial capacities with the Company since joining it in January 1987. Prior
to joining Theragenics, Mr. Smith served Duracell, Inc. in various financial
capacities.

Dean Fitzgerald has served as Vice President of Business Development since
January 1996. Mr. Fitzgerald joined the Company in 1993 as Manager of Client and
Public Relations and was subsequently promoted to Director of Marketing and
Sales before assuming his current duties. Prior to joining Theragenics, Mr.
Fitzgerald was President of American Export Trading Company, Inc., a
manufacturer's representative and marketing consulting firm.

John V. Herndon joined the Company in April 1987 as Executive Vice
President and in July 1989 was appointed President, Chief Executive Officer and
Chairman of the Board of Directors of the Company. In August 1993, Mr. Herndon
relinquished his role as Chief Executive Officer while retaining his position as
Chairman of the Board of Directors of the Company. Mr. Herndon stepped down as
Chairman of the Board in December 1994 and currently serves as a director and
Advisor-to-the President.

Peter A.A. Saunders has served as a director of the Company since 1989. He
is manager/owner of PASS Consultants, a Great Britain-based management
consulting firm established in 1988. From April 1991 to April 1993, Mr. Saunders
was also Managing Director of United Artists Communications in London, a cable
television and telephone service provider. Mr. Saunders presently serves as a
non-executive director for several other British companies, including Mayday
Healthcare Trust (hospital), Coughlan's Patisserie (bakery shops) and Eurobell
(Sussex) Ltd. (cable TV and telecommunications).

Charles R. Klimkowski has served as a director of the Company since 1993
and was elected Chairman of the Board of Directors in December 1994. He has been
employed by The Chicago Corporation, most recently

33
<PAGE> 34

as a Senior Vice President and Director, a Portfolio Manager and a member of the
Investment Policy Committee since 1980.

Orwin L. Carter, Ph.D. has served as a director of the Company since 1991.
He is Vice President of Finance and Administration for Hamline University in St.
Paul, Minnesota. Since March 1995, Dr. Carter has served as a consultant to
INCSTAR Corporation, a manufacturer of in vitro diagnostic test kits and an
affiliate of Sorin Biomedica. From 1989 to September 1994, Dr. Carter was
employed by INCSTAR in various capacities, including Chairman, Chief Executive
Officer and President. Dr. Carter is also a member of the Board of Directors of
Lifecore Biomedical, Inc.

Otis Brawley, M.D. has served as a director of the Company since 1995. He
has been Program Director of the Community Oncology and Rehabilitation Branch,
Early Detection and Community Oncology Program, a Division of Cancer Prevention
and Control of the National Cancer Institute, since 1990. Dr. Brawley has also
been a Commissioned Officer of the U.S. Public Health Service since 1989 and
tenured with the Research Officer Group since February 1994. Dr. Brawley's
professional activities have included: National Cancer Institution (NCI)
Coordinator and Project Officer of the Prostate Cancer Prevention Trial; NCI
Coordinator of the Minority-Based Community Clinical Oncology Program; and
coauthor and associate investigator in several protocols approved by the
National Institutes of Health Clinical Center Investigational Review Committee.
Dr. Brawley has received such distinguished honors as the Public Health Service
Commendation in 1993 and the National Cancer Institute and the Equal Employment
Opportunity Officer's Commendation in 1991 and 1993. Additionally, he has
coauthored more than 21 publications. Dr. Brawley also reviews for several
prestigious publications.
---------------------

The Board of Directors is divided into three classes with two directors in
each class. One class of directors is elected each year for a three-year term
and until their successors have been elected and qualified or until their
earlier resignation or removal. Class I directors Herndon and Saunders will
serve until the Company's 1999 Annual Meeting of Stockholders; Class II
directors Klimkowski and Brawley will serve until the 1997 Annual Meeting of
Stockholders; and Class III directors Carter and Jacobs will serve until the
1998 Annual Meeting of Stockholders.

The Board of Directors has established Nominating, Audit, Stock Option and
Compensation Committees. The Nominating Committee recommends director nominees,
and the Audit Committee reviews the scope and results of the audit and other
services performed by the Company's independent accountants. The Stock Option
Committee is charged with the administration of the Company's stock option
plans, and the Compensation Committee sets compensation to be paid to the Chief
Executive Officer.

Officers are elected by, and serve at the discretion of, the Board of
Directors.

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<PAGE> 35

UNDERWRITING

Upon the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
shares of Common Stock which equal the number of shares set forth opposite the
name of such Underwriter below.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Smith Barney Inc............................................ 850,000
Dain Bosworth Incorporated.................................. 850,000
Fahnestock & Co. Inc........................................ 50,000
Ladenburg, Thalmann & Co. Inc............................... 50,000
Nutmeg Securities, Ltd...................................... 50,000
Paulson Investment Company, Inc............................. 50,000
The Robinson-Humphrey Company, Inc.......................... 50,000
Sterne, Agee & Leach, Inc................................... 50,000
---------
Total............................................. 2,000,000
=========
</TABLE>

The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.

The Underwriters, for whom Smith Barney Inc. and Dain Bosworth Incorporated
are acting as Representatives, propose initially to offer part of the shares of
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $.56 per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $.10 per share to other Underwriters or to certain other dealers. After the
public offering, the public offering price and such concessions may be changed
by the Underwriters.

The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 300,000
additional shares of Common Stock at the public offering price set forth on the
cover page hereof less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares in such table.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

The Company and its officers and directors, who beneficially own in the
aggregate approximately 583,847 shares of Common Stock, have agreed not to
offer, sell, contract to sell or otherwise dispose of any shares of Common Stock
or any securities convertible into, or exercisable or exchangeable for, Common
Stock without the prior written consent of Smith Barney Inc. for a period of 90
days after the date of this Prospectus except, in the case of the Company, in
certain limited circumstances.

In connection with this offering and in compliance with applicable law and
industry practice, the Underwriters may overallot or effect transactions which
stabilize, maintain or otherwise affect the market price of the Common Stock at
a level above that which might otherwise prevail in the open market, including
by entering stabilizing bids, effecting syndicate covering transactions or
imposing penalty bids. A stabilizing bid means the placing of any bid, or the
effecting of any purchase, for the purpose of pegging, fixing or maintaining the
price of a security. A syndicate covering transaction means the placing of any
bid on behalf of the underwriting syndicate or the effecting of any purchase to
reduce a short position created in connection with the offering. A penalty bid
means an arrangement that permits Smith Barney Inc., as managing underwriter, to
reclaim a selling concession from a syndicate member in connection with the
offering when

35
<PAGE> 36

Common Stock originally sold by the syndicate member is purchased in syndicate
covering transactions. Such transactions may be effected on The Nasdaq Stock
Market's National Market, or otherwise. The Underwriters are not required to
engage in any of these activities. Any such activities, if commenced, may be
discontinued at any time.

In February 1997, the Company engaged Smith Barney Inc. to provide
investment advisory services in connection with the Company's consideration of
the Rights Plan. For its services, Smith Barney Inc. is entitled to receive
customary compensation, to be reimbursed for certain expenses and to be
indemnified against specified liabilities. See "Risk Factors -- Anti-takeover
Effects of Certain Charter, Bylaw and Delaware Law Provisions; Stockholder
Rights Plan" and "Recent Developments -- Adoption of Stockholder Rights Plan."

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Powell, Goldstein, Frazer & Murphy LLP,
Atlanta, Georgia. Certain legal matters with respect to the shares of Common
Stock offered hereby will be passed upon for the Underwriters by Dewey
Ballantine, New York, New York.

EXPERTS

The Balance Sheets as of December 31, 1996 and December 31, 1995 and the
Statements of Earnings, Shareholders' Equity and Cash Flows for each of the
three years in the period ended December 31, 1996 included in this Prospectus
and incorporated by reference in this Prospectus from the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, have been incorporated
herein in reliance on the report of Grant Thornton LLP, independent certified
public accountants, given on the authority of that firm as experts in accounting
and auditing.

The statements in this Prospectus under the captions "Risk
Factors -- Intellectual Property Rights; Dependence on Trade Secrets" and
"Business -- Patents and Licenses; Trade Secrets" and other references herein to
United States patent and licensing matters have been reviewed and approved by T.
Tydings Robin, Jr., patent counsel for the Company, as an expert on such matters
and are included herein in reliance upon that review and approval. Mr. Robin is
an employee of the Company.

36
<PAGE> 37

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents or portions thereof, filed with the Securities and
Exchange Commission (the "Commission") under the Exchange Act are incorporated
hereto by reference:

(a) The Company's Annual Report on Form 10-K (File No. 0-15443) for
the year ended December 31, 1996;

(b) The Company's Current Report on Form 8-K (File No. 0-15443) filed
on January 13, 1997, as amended March 25, 1997;

(d) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A, as filed with the Commission on March
2, 1987; and

(e) The description of the Rights contained in the Company's
Registration Statement on Form 8-A, as filed with the Commission on
February 26, 1997.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering made hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
respective dates of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute part of this Prospectus.

The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon written or oral request, a copy of any or all information
incorporated by reference in this Prospectus (not including exhibits to the
information that has been incorporated by reference, unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Such requests should be directed to Theragenics Corporation,
Attention: Ron Warren, Director of Investor Relations, at 5325 Oakbrook Parkway,
Norcross, Georgia 30093, telephone number (800) 998-8479 or (770) 381-8338.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected without charge at, and copies thereof may be
obtained at prescribed costs from, the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following regional offices of the Commission: 7 World Trade Center, Suite
1300, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may be obtained at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549. The Commission maintains a Web site that contains reports,
proxy statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Web site is
http://www.sec.gov. The Common Stock is listed for trading on the Nasdaq Stock
Market and reports, proxy statements and other information concerning the
Company may be inspected at the offices of the Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006.

This Prospectus, which constitutes part of a Registration Statement on Form
S-3 (the "Registration Statement") filed by the Company with the Commission
under the Securities Act of 1933, as amended, omits certain of the information
contained in the Registration Statement and the exhibits and schedules thereto.
Reference is hereby made to the Registration Statement and to the exhibits and
schedules relating thereto for further information with respect to the Company
and the securities offered hereby. Statements contained herein concerning the
provisions of documents are necessarily summaries of such documents, and each
such statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission.

37
<PAGE> 38

CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.......... F-2
FINANCIAL STATEMENTS........................................ F-3
BALANCE SHEETS............................................ F-3
STATEMENTS OF EARNINGS.................................... F-4
STATEMENT OF SHAREHOLDERS' EQUITY......................... F-5
STATEMENTS OF CASH FLOWS.................................. F-6
NOTES TO FINANCIAL STATEMENTS............................. F-7
</TABLE>

F-1
<PAGE> 39

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Theragenics Corporation

We have audited the balance sheets of Theragenics Corporation (a Delaware
corporation) as of December 31, 1995 and 1996, and the related statements of
earnings, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Theragenics Corporation as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.

GRANT THORNTON LLP

Atlanta, Georgia
January 16, 1997

F-2
<PAGE> 40

THERAGENICS CORPORATION

BALANCE SHEETS
DECEMBER 31,

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments........................... $ 3,266,338 $ 2,986,123
Trade accounts receivable................................. 1,335,645 2,258,936
Inventories............................................... 166,955 229,298
Prepaid expenses and other current assets................. 67,521 133,625
----------- -----------
Total current assets.............................. 4,836,459 5,607,982
PROPERTY, PLANT AND EQUIPMENT -- AT COST
Building and improvements................................. 1,690,045 3,333,728
Leasehold improvements.................................... 138,978 138,978
Machinery and equipment................................... 8,203,256 11,522,064
Office furniture and equipment............................ 44,721 65,057
----------- -----------
10,077,000 15,059,827
Less accumulated depreciation............................. 2,194,164 3,237,684
----------- -----------
7,882,836 11,822,143
Land...................................................... 49,485 525,372
Construction in progress.................................. 2,140,894 5,238,056
----------- -----------
10,073,215 17,585,571
OTHER ASSETS
Deferred income tax asset................................. 1,810,000 360,000
Patent costs.............................................. 90,704 80,685
Other..................................................... 67,804 55,183
----------- -----------
1,968,508 495,868
----------- -----------
$16,878,182 $23,689,421
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt......................... $ 511,362 $ 3,458,436
Trade accounts payable.................................... 348,191 330,375
Accrued salaries, wages and payroll taxes................. 225,138 459,421
Other current liabilities................................. 15,935 56,677
----------- -----------
Total current liabilities......................... 1,100,626 4,304,909
LONG-TERM DEBT.............................................. 1,008,135 --
COMMITMENTS AND CONTINGENCIES............................... -- --
SHAREHOLDERS' EQUITY
Common stock -- authorized 50,000,000 shares of $.01 par
value; issued and outstanding, 11,394,785 in 1995 and
11,814,278 in 1996..................................... 113,948 118,143
Additional paid-in capital................................ 16,390,170 17,616,560
Retained earnings (accumulated deficit)................... (1,734,697) 1,649,809
----------- -----------
14,769,421 19,384,512
----------- -----------
$16,878,182 $23,689,421
=========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-3
<PAGE> 41

THERAGENICS CORPORATION

STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31,

<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Revenue
Product sales....................................... $4,723,107 $7,781,962 $12,257,165
Licensing fees...................................... -- 85,431 100,000
---------- ---------- -----------
4,723,107 7,867,393 12,357,165
---------- ---------- -----------
Costs and expenses
Cost of product sales............................... 1,790,450 2,645,730 3,735,669
Selling, general and administrative................. 1,844,239 2,395,846 3,198,663
Research and development............................ 15,268 17,954 6,952
---------- ---------- -----------
3,649,957 5,059,530 6,941,284
---------- ---------- -----------
Other income (expense)
Interest income..................................... 135,888 143,424 126,953
Interest expense.................................... -- (51,967) (84,517)
Other............................................... (25,673) (26,995) (6,311)
---------- ---------- -----------
110,215 64,462 36,125
---------- ---------- -----------
Net earnings before income taxes............ 1,183,365 2,872,325 5,452,006
Income tax expense.................................... 453,000 1,100,000 2,067,500
---------- ---------- -----------
Net earnings................................ $ 730,365 $1,772,325 $ 3,384,506
========== ========== ===========
Earnings per common share............................. $ .06 $ .15 $ .28
---------- ---------- -----------
Weighted average shares............................... 11,582,793 11,759,178 12,259,214
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE> 42

THERAGENICS CORPORATION

STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
COMMON STOCK
---------------------- RETAINED
PAR ADDITIONAL EARNINGS
NUMBER OF VALUE PAID-IN (ACCUMULATED
SHARES $.01 CAPITAL DEFICIT) TOTAL
---------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993................... 10,912,937 $109,129 $15,161,942 $(4,237,387) $11,033,684
Exercise of stock options.................. 49,900 499 49,401 -- 49,900
Common stock redeemed...................... (950) (10) (3,890) -- (3,900)
Net earnings for the year.................. -- -- -- 730,365 730,365
---------- -------- ----------- ----------- -----------
Balance, December 31, 1994................... 10,961,887 109,618 15,207,453 (3,507,022) 11,810,049
Exercise of stock options.................. 450,000 4,500 576,370 -- 580,870
Common stock redeemed...................... (17,102) (170) (106,653) -- (106,823)
Income tax benefit from stock options
exercised................................ -- -- 713,000 -- 713,000
Net earnings for the year.................. -- -- -- 1,772,325 1,772,325
---------- -------- ----------- ----------- -----------
Balance, December 31, 1995................... 11,394,785 113,948 16,390,170 (1,734,697) 14,769,421
Exercise of stock options.................. 391,216 3,912 648,242 -- 652,154
Exercise of warrants....................... 40,000 400 299,600 -- 300,000
Common stock redeemed...................... (11,723) (117) (250,079) -- (250,196)
Income tax benefit from stock options
exercised................................ -- -- 528,627 -- 528,627
Net earnings for the year.................. -- -- -- 3,384,506 3,384,506
---------- -------- ----------- ----------- -----------
Balance, December 31, 1996................... 11,814,278 $118,143 $17,616,560 $ 1,649,809 $19,384,512
========== ======== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of this statement.

F-5
<PAGE> 43

THERAGENICS CORPORATION

STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,

<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings...................................... $ 730,365 $ 1,772,325 $ 3,384,506
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Deferred income tax expense.................... 433,000 1,082,000 1,972,000
Depreciation and amortization.................. 571,615 828,072 1,114,919
Loss on disposal of property and equipment..... 1,571 1,677 --
Change in assets and liabilities:
Accounts receivable.......................... (197,133) (603,221) (923,291)
Inventories.................................. (32,834) 25,206 (62,343)
Prepaid expenses and other current assets.... 22,448 24,280 (66,104)
Other assets................................. (200) -- --
Trade accounts payable....................... 78,402 121,982 (17,816)
Accrued salaries, wages and payroll taxes.... 21,400 115,006 234,283
Other current liabilities.................... 14,942 (17,214) 47,369
----------- ----------- -----------
Net cash provided by operating
activities.............................. 1,643,576 3,350,113 5,683,523
----------- ----------- -----------
Cash flows from investing activities:
Purchase and construction of property and
equipment...................................... (3,376,967) (2,426,961) (8,555,876)
Maturities of marketable securities............... 309,765 50,000 --
Patent costs...................................... (587) (3,632) --
----------- ----------- -----------
Net cash used by investing activities........ (3,067,789) (2,380,593) (8,555,876)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt...................... 2,100,000 -- 2,450,225
Repayment of long-term debt....................... (1,441,320) (469,622) (511,286)
Proceeds from exercise of stock options and
warrants....................................... 49,900 580,870 952,154
Payment for redemption of common stock............ (3,900) (106,823) (250,196)
Debt issue costs.................................. (46,025) (25,070) (48,759)
----------- ----------- -----------
Net cash (used) provided by financing
activities.............................. 658,655 (20,645) 2,592,138
----------- ----------- -----------
Net increase (decrease) in cash and short-term
investments....................................... (765,558) 948,875 (280,215)
Cash and short-term investments at beginning of
year.............................................. 3,083,021 2,317,463 3,266,338
----------- ----------- -----------
Cash and short-term investments at end of year...... $ 2,317,463 $ 3,266,338 $ 2,986,123
=========== =========== ===========
</TABLE>

Supplemental Schedule of Non Cash Financing Activities

During 1995 and 1996, the Company realized an income tax benefit from the
exercise and early disposition of certain stock options, resulting in an
increase in the deferred tax asset and additional paid in capital of $713,000
and $528,627, respectively.

Supplementary Cash Flow Disclosure

<TABLE>
<S> <C> <C> <C>
Interest paid, net of amounts capitalized........... $ -- $ 53,843 $ 82,324
Income taxes paid................................. 21,500 14,858 98,755
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE> 44

THERAGENICS CORPORATION

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996

NOTE A -- ORGANIZATION AND DESCRIPTION OF BUSINESS

Theragenics Corporation (the "Company") was organized in November 1981 to
develop, manufacture, and market radiological pharmaceuticals and devices used
in the treatment of cancer. The Company manufactures and markets primarily one
product, which is used in the treatment of cancer. Use of the Company's product
is regulated by the U.S. Food and Drug Administration (FDA). The Company sells
its product primarily to hospitals, physicians and other health service
providers in the United States. The Company therefore is directly affected by
changes in technology, as it may apply to cancer treatment, and by FDA
regulations and the well being of the health care industry.

NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:

1. USE OF ESTIMATES

In preparing financial statements in conformity with generally accepted
accounting principles ("GAAP"), management is required to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.

2. ACCOUNTS RECEIVABLE

The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.

3. INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
using the specific identification method which approximates the first-in,
first-out (FIFO) method. Inventories consist primarily of work in process.

4. PROPERTY, EQUIPMENT, DEPRECIATION AND AMORTIZATION

Property and equipment are recorded at historical cost. Depreciation is
provided for in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated services lives on a straight-line basis.
Depreciation and amortization expense related to property and equipment charged
to operations was approximately $564,000, $810,000 and $1,044,000 for 1994, 1995
and 1996, respectively. Estimated services lives are as follows:

<TABLE>
<S> <C>
Building and improvements................................... 30 years
Machinery, leasehold improvements, furniture and
equipment................................................. 5-10 years
</TABLE>

A significant portion of the Company's depreciable assets are utilized in
the production of its product. Management periodically evaluates the
realizability of its depreciable assets in light of its current industry
environment. Management believes that no impairment of depreciable assets exists
at December 31, 1996. It is possible, however, that management's estimates
concerning the realizability of the Company's depreciable assets could change in
the near term due to changes in the technological and regulatory environment.

F-7
<PAGE> 45

THERAGENICS CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. PATENT COSTS

The Company capitalizes the costs of patent applications for its products.
Amortization is computed on a straight line basis over the estimated economic
lives of the patents, commencing at the date of grant of the related patent.
Patent costs are net of accumulated amortization of $37,276 and $47,295 at
December 31, 1995 and 1996, respectively. Amortization related to patent costs
charged to operations was approximately $7,800, $8,000 and $10,000 for 1994,
1995 and 1996, respectively.

6. INCOME TAXES

The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates applied to taxable income. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance is provided for deferred
tax assets when it is more likely than not that the asset will not be realized.

7. RESEARCH AND DEVELOPMENT COSTS

The costs of research and development and consumable supplies and materials
to be used for the development of the Company's intended products are expensed
when incurred.

8. ADVERTISING

The Company expenses the cost of advertising as incurred. Advertising
expense for the years ended December 31, 1994, 1995 and 1996 was approximately
$16,000, $139,000, and $229,000, respectively.

9. NET EARNINGS PER COMMON SHARE

Net earnings per common share is based on the weighted average number of
common shares and common equivalent shares outstanding during each period.

Fully diluted information is not presented, as fully diluted earnings per
share is not materially different from the primary earnings per share presented.

10. STOCK BASED COMPENSATION

The Company's stock option plans are accounted for under the intrinsic
value method in which compensation expense is recognized for the amount, if any,
that the fair value of the underlying common stock exceeds the exercise price at
the date of grant.

11. STATEMENTS OF CASH FLOWS

For purposes of reporting cash flows, cash and short-term investments
include cash on hand, cash in banks and commercial paper with original
maturities of less than 90 days.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments include cash, cash equivalents and
long-term debt. The carrying value of cash and cash equivalents approximates
fair value due to the relatively short period to maturity of the instruments.
The carrying value of the Company's long-term obligations approximates fair
value based upon borrowing rates currently available to the Company for
borrowings with comparable maturities.

F-8
<PAGE> 46

THERAGENICS CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE C -- CONSTRUCTION IN PROGRESS

Construction in progress represents payments made for construction of
manufacturing equipment and facilities expansion. Total cost of this project is
expected to be approximately $20,000,000 and is expected to be completed in
various stages through 1998.

Construction of equipment and facilities totaling approximately $3,800,000
and $4,900,000 were completed and placed in service during 1995 and 1996,
respectively.

NOTE D -- INCOME TAXES

The provision for income taxes is summarized as follows:

<TABLE>
<CAPTION>
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Current tax expense................................. $ 20,000 $ 18,000 $ 95,500
Deferred tax expense................................ 433,000 1,082,000 1,972,000
-------- ---------- ----------
$453,000 $1,100,000 $2,067,500
======== ========== ==========
</TABLE>

The Company's temporary differences result in a deferred income tax asset,
summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $2,240,000 $ 870,000
Tax credit carryforwards.................................. 90,000 174,000
Nondeductible accruals and allowances..................... 38,000 50,000
Other..................................................... 7,000 14,000
---------- ----------
Gross deferred tax asset.......................... 2,375,000 1,108,000
Deferred tax liabilities:
Depreciation.............................................. 565,000 748,000
---------- ----------
Net deferred tax asset............................ $1,810,000 $ 360,000
========== ==========
</TABLE>

The significant portion of the net operating loss carryforwards were
incurred while the Company was in the development stage. Upon receiving
clearance to market its "Theraseed" product from the U.S. Food and Drug
Administration (FDA) in 1986, the Company commenced manufacturing and
distribution of its product in 1987. Since emerging from the development stage
in 1989, the Company has utilized approximately $7,500,000 of these net
operating loss carryforwards through December 31, 1996 by generating taxable
income. In order to realize the income tax benefit from the remaining net
operating loss carryforwards at December 31, 1996, it will be necessary for the
Company to generate future taxable income of approximately $2,300,000, prior to
the expiration of the net operating loss carryforward periods. Based on the
Company's results of operations subsequent to receiving FDA clearance to market
its product, and on expected future results of operations, management believes
that currently it is more likely than not that the income tax benefits of the
net operating loss carryforwards will be realized within the carryforward
period. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income during
the carryforward period are reduced.

F-9
<PAGE> 47

THERAGENICS CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The provision for income taxes differs from the amount of income tax
determined by applying the applicable federal rates due to the following:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
----------------------------------
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Tax at applicable federal rate of 34%............... $402,000 $ 977,000 $1,854,000
State tax, net...................................... 47,000 115,000 208,000
Other............................................... 4,000 8,000 5,500
-------- ---------- ----------
$453,000 $1,100,000 $2,067,500
======== ========== ==========
</TABLE>

The Tax Reform Act of 1986 enacted an alternative minimum tax system for
corporations (the "AMT"). AMT is imposed at a 20% rate on the Company's AMT
income which is determined by making statutory adjustments to regular taxable
income. A company pays the greater of the taxes computed under the "regular" tax
system or the AMT system. Because AMT net operating loss carryforwards may only
be utilized to offset 90% of the AMT income, the Company was subject to the AMT
in 1994, 1995 and 1996, resulting in an alternative minimum tax of $20,000,
$18,000 and $95,500, respectively. These amounts will be allowed as a credit
carryover to reduce the regular tax liability in future years, but not below the
AMT of such years.

At December 31, 1996, the Company had approximate net federal operating
loss carryforwards for regular tax and AMT purposes as follows:

<TABLE>
<CAPTION>
NET OPERATING NET OPERATING
YEAR OF EXPIRATION LOSS (REGULAR) LOSS (AMT)
------------------ -------------- -------------
<S> <C> <C>
2004.................................................... $1,698,000 $234,000
2005.................................................... 591,000 554,000
---------- --------
$2,289,000 $788,000
========== ========
</TABLE>

NOTE E -- NOTES PAYABLE

In December 1996, the Company entered into an amended and restated loan and
security agreement (the "loan agreement") with a financial institution. This
loan agreement incorporated the Company's existing term loan and line of credit
(the "1995 loan agreement") with the same financial institution, which had an
outstanding balance of approximately $1,050,000. The 1995 loan agreement
required monthly payments of $51,862, including interest at 8.47%.

The loan agreement provides for a revolving credit facility of up to
$11,000,000. Interest on outstanding borrowings is payable monthly at the prime
rate or at the LIBOR rate plus 2% (effective rate of 8.25% at December 31,
1996). At December 31, 1996, $3,458,436 was outstanding under the revolving
credit facility.

All outstanding borrowings under the loan agreement are due on June 30,
1997. However, the outstanding principal can be repaid over sixty equal
consecutive monthly installments, commencing July 31, 1997, provided that the
Company meets the term-out requirements as specified in the agreement. The
term-out requirements include, among other things, the attainment of a certain
minimum net worth and other financial ratios for the quarter ending March 31,
1997. Commencing on June 30, 1997 the interest rate on outstanding borrowings
will be the prime rate or, at the Company's option, the LIBOR rate plus
1.75%-2.25% or a rate based on U.S. Treasury bills plus 2%-2.5%. The rate margin
on the LIBOR and Treasury rates are based upon the Company's debt service
coverage ratio, as defined in the loan agreement.

Outstanding borrowings under the loan agreement are collateralized by
substantially all of the Company's assets. Provisions of the loan agreement
limit the amount of annual capital expenditures, the incurrence of additional
debt and, among other things, require the maintenance of certain minimum
financial ratios. The loan agreement also limits the number of manufacturing
systems the Company can order and purchase, based

F-10
<PAGE> 48

THERAGENICS CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

upon quarterly revenues. As of December 31, 1996, the Company was in compliance
with the provisions of the loan agreement.

NOTE F -- COMMITMENTS AND CONTINGENCIES

LICENSING AGREEMENT

The Company holds a worldwide exclusive license from the University of
Missouri for the use of technology, patented by the University, used in the
Company's "TheraSphere(R)" product. The licensing agreement provides for the
payment of royalties based on the level of sales and on lump sum payments
received pursuant to a licensing agreement with Nordion International, Inc. (see
below).

The Company has granted certain of its worldwide rights under the licensing
agreement with the University of Missouri to Nordion International, Inc.
("Nordion"), a Canadian company which is a producer, marketer and supplier of
radioisotope products and related equipment. Under the Nordion agreement,
entered into on March 23, 1995, the Company has received certain lump sum
payments and will receive a licensing fee for each geographic area in which
Nordion receives new drug approval. The Company will also be entitled to a
percentage of future revenues earned by Nordion as royalties under the
agreement. Royalties from this agreement for each of the three years in the
period ended December 31, 1996 were not significant.

In 1995 and 1996, the Company received approximately $85,000 and $100,000,
respectively, from Nordion for the right to use certain patents and to
manufacture, distribute, and sell "TheraSphere(R)" for all applications
worldwide.

LETTER OF CREDIT

The Company has a letter of credit outstanding for approximately $315,000
relating to regulatory requirements.

LEASE COMMITMENT

The Company leases space under two noncancelable leases which expire in
December 1998 and February 1999. Approximate minimum lease payments under the
leases are as follows: 1997, $112,000; 1998, $114,000; 1999, $7,500.

Rent expense was approximately $61,000, $61,500 and $76,000 for the years
ended December 31, 1994, 1995 and 1996, respectively.

NOTE G -- STOCK OPTIONS AND WARRANTS

STOCK OPTIONS

The Company's board of directors has approved three stock option plans
which in aggregate cover up to 2,200,000 shares of common stock. The plans
provide for the expiration of options ten years from the date of grant and
requires the exercise price of the options granted to be at least equal to 100%
of market value on the

F-11
<PAGE> 49

THERAGENICS CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

date granted. Stock option transaction for each of the three years in the period
ended December 31, 1996 are summarized below:

<TABLE>
<CAPTION>
1994 1995 1996
-------------------- -------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year....................... 1,258,116 $2.05 1,226,716 $2.09 997,716 $ 3.11
Granted.................... 40,000 2.50 221,000 5.38 220,000 15.92
Exercised.................. (49,900) 1.00 (450,000) 1.29 (391,216) 2.21
Forfeited.................. (21,500) 2.74 -- -- -- --
--------- ----- --------- ----- -------- ------
Outstanding, end of year..... 1,226,716 $2.09 997,716 $3.11 826,500 $ 7.22
========= ===== ========= ===== ======== ======
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ---------------------------------
NUMBER NUMBER
RANGE OF OUTSTANDING AT WEIGHTED AVERAGE EXERCISABLE AT
EXERCISE DECEMBER 31, REMAINING WEIGHTED AVERAGE DECEMBER 31, WEIGHTED AVERAGE
PRICE 1996 CONTRACTUAL LIFE EXERCISE PRICE 1996 EXERCISE PRICE
-------- -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00 - 3.50............. 245,000 3.9 $ 1.83 232,600 $ 1.75
$5.38 - 6.38............. 361,500 8.7 5.54 189,500 5.56
$15.25 - 16.88........... 220,000 10.0 15.99 12,000 16.88
------- ----- ------- ------- -------
826,500 7.6 $ 7.22 434,100 $ 3.83
======= ===== ======= ======= =======
</TABLE>

The Company follows the practice of recording amounts received upon the
exercise of options by crediting common stock and additional capital. No charges
are reflected in the statements of operations as a result of the grant or
exercise of options. The Company realizes an income tax benefit from the
exercise or early disposition of certain stock options. This benefit results in
an increase to the deferred tax asset and an increase in additional paid-in
capital.

The Company uses the intrinsic value method in accounting for its stock
option plans. In applying this method, no compensation cost has been recognized.
Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant dates for awards under those plans, the Company's
net earnings and earnings per share would have resulted in the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Net earnings
As reported............................................... $1,772,325 $3,384,506
Pro forma................................................. 1,750,736 3,015,123
Primary earnings per share
As reported............................................... $ .15 $ .28
Pro forma................................................. .15 .25
</TABLE>

Fully diluted information is not presented, as reported and pro forma fully
diluted earnings per share is not materially different from the primary earnings
per share presented.

For purposes of the pro forma amounts above, the fair value of each option
grant was estimated on the date of grant using the Black-Scholes options-pricing
model with the following weighted-average assumptions used for grants in 1995
and 1996, respectively; expected volatility of 70% for each year, risk-free
interest rates of 5.86%, and 6.15%-6.46%; and expected lives of 5-7 years and 7
years.

F-12
<PAGE> 50

THERAGENICS CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

WARRANTS

During 1996, 40,000 warrants were exercised, resulting in proceeds to the
Company of $225,000. The Company also has warrants outstanding at December 31,
1996 covering 60,000 shares of common stock. The warrants are exercisable at a
price of $7.50 per share and expire in May 1999.

NOTE H -- MAJOR CUSTOMERS

During 1994, there were sales to one major customer that equaled
approximately ten percent of sales. During 1995 and 1996, there were no
customers which individually comprised ten percent of sales.

NOTE I -- EMPLOYEE BENEFIT PLAN

The Company sponsors a defined contribution 401(k) Plan covering all
employees with at least six months of service and at least 21 years of age. The
Plan permits participants to defer a portion of their compensation through
payroll deductions. The Company may, at its discretion, contribute to the Plan
on behalf of participating employees. Company discretionary contributions were
approximately $27,700, $39,700 and $14,100 for 1994, 1995 and 1996,
respectively.

F-13
<PAGE> 51

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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
The Company........................... 12
Recent Developments................... 12
Use of Proceeds....................... 13
Capitalization........................ 13
Dividend Policy....................... 14
Price Range of Common Stock........... 14
Selected Financial Data............... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 21
Management............................ 33
Underwriting.......................... 35
Legal Matters......................... 36
Experts............................... 36
Incorporation of Certain Documents by
Reference........................... 37
Available Information................. 37
Index to Financial Statements......... F-1
</TABLE>

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2,000,000 SHARES
THERAGENICS CORPORATION LOGO
COMMON STOCK
------------------
PROSPECTUS
MARCH 31, 1997
------------------
SMITH BARNEY INC.

DAIN BOSWORTH
INCORPORATED

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